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Equilibrium price and quantity at the medium level

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The following is a demand and supply model for a business firm producing baseball caps. Assume that 100 baseball caps is the optimal ad most profitable level of production for the firm. Answer the next four questions assuming that the price of baseball caps is inflexible.

(a) What are the equilibrium price and quantity at the medium level of demand (DM)?

(b) What will be the equilibrium price and quantity if there is a demand shock that unexpectedly lowers demand (DL)?

(c) What will be the equilibrium price and quantity if there is a demand shock that unexpectedly increases demand (DH)?

(d) What can you conclude will happen to prices and output when this model is shocked by changes in demand?

Reference no: EM132482778

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