Author Question: Suppose there are only two goods Food (F) and Shelter (S). The demand equations for these two goods ... (Read 23 times)

Melani1276 · **on:** Jul 1, 2018

Suppose there are only two goods Food (F) and Shelter (S). The demand equations for these two goods depend on their prices, pF and pS as follows:

DF (pF, pS) = 10 2pF pS
DS (pF, pS) = 10 pF 2pS
The supply curves depend only on their own prices:
SF (pF) = pF
SS (pS) = 5pS
Determine the equilibrium price and quantity of these goods.

Question 2

If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities, then

A) consumer surplus is larger than under single-price monopoly.
B) social welfare is larger than under perfect competition.
C) the monopoly's profits are larger than under single-price monopoly.
D) the monopoly's profits are larger than under perfect price discrimination.

Sweetkitty24130 · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

The two equations describing the equilibrium in each market are given by:
pF = 10 2pF pS
5pS = 10 pF 2pS
Using the first equation, we can solve for pS in terms of pF:
pS = 10 3pF
Substituting this into the second equilibrium condition for pS yields:
7(10 3pF) = 10 pF
Solving for pF = 3.0. Then pS =1.0. The quantities are QF = 3 and QS = 5. Notice that while the demand equations are symmetrical, the higher supply of Shelter results in a lower price and higher quantity in equilibrium.

Answer to Question 2

C