Economics: Competitive market equilibrium

Economics: Competitive market equilibrium

Shower timer, this simple device helps monitor the amount of time people spend at the shower and the time the water is running. By looking at it, an environmentally conscious person will spend less time at the shower, saving water. Suppose that you are the market research person for this company that makes shower timers.

Suppose the market for the shower timer is defined with the following functions

Supply: .02 + 0.0662Q

Demand: P= 7 – 0.05Q

Where P is the price per device and Q is expressed in 1,000 devices

A) The company must decide if they expand or contract their current operations. Currently the price of the product is at $3. At this price, should the company be expanding or contracting (Hint: solve for Q in both functions)? Explain why and show your work. (Math required, show your work)

B) Find the market equilibrium for the shower timer (math required, show your work)

2 Refrigerators is a must have appliance nowadays. According to Energy Star in 2008 fridge sales overpassed 9 million units (Not bad for being a low year). The demand (MPB) for refrigerators is expressed as

P = 100 – Q

The marginal private cost (MPC) of producing these appliances is

P = 10 + Q

It is also estimated that the use of refrigerant gas in the production process creates an external harm to the environment (i.e. a negative externality) expressed as

MEC = 0.5Q

Assume there are no external benefits from releasing these gases to the atmosphere so

a) Estimate the competitive market equilibrium (P & Q) for refrigerators in the U.S. (Math Required)

b) Estimate the efficient market equilibrium.

c) At an efficient equilibrium how much is the marginal external cost?

Note: Show your work

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