Equilibrium in a two commodity market, Managerial Economics

Assignment Help:

Equilibrium in a two commodity market

Let us consider a two-commodity market model in which the two commodities are related to each other.  Let us assume the functions for both commodities are linear.  The two commodities are complementary commodities say (cars (c ) and petrol (P).  The functions representing the commodities are as follows:

Qdc = 820 - 10 Pc - 4Pp                                  Qdp = 590 - 2Pc - 6Pp

Qsc = -120 + 6Pc                                                     Qsp = - 240 + 4Pp

At equilibrium,

1)       Qdc = Qsc                                          

820 - 10Pc - 4Pp = - 120 + 6Pc

       940 - 16Pc - 4Pp = 0

2)       Qdp = Qsp

590 - 2Pc - 6Pp = -240 + 4Pp

830 - 2Pc - 10Pp = 0

There are now therefore two equations:

940 - 16Pc - 4Pp = 0. .....................(i)

830 - 2Pc - 10Pp = 0  ......................(ii)

Multiply (ii) by 8 which gives (iii).  Subtract (i) from (iii) to eliminate Pc and solve for Pp.

6,640 - 16 Pc - 80Pp = 0..(iii)

- (940 - 16Pc -   4Pp = 0  ...................(i)

5,700             -  76Pp = 0

                          Pp = 75

Substituting Pp = 75 in (i) we obtain:

940 - 16Pc - 4(75) = 0

16pc = 640

Pc = 40

Substituting Pc = 40 and Pp = 75 into Qd or Qs for each market

1)       Qdc = 820 - 10 (40) - 4 (75)

= 820 - 400 - 300

Qdc = 120 = Qsc

2)       Qdp = 590 - 2 (40) - 6 ( 75)

= 590 - 80 - 450

Qdp = 60 = Qsp


Related Discussions:- Equilibrium in a two commodity market

Discuss profit maximizing model in detail, Question 1. Discuss the practic...

Question 1. Discuss the practical application of Price elasticity and Income elasticity of demand Question 2. Discuss profit maximizing model in detail Question 3. Descr

Product differentiation, PRODUCT DIFFERENTIATION   Product differenti...

PRODUCT DIFFERENTIATION   Product differentiation describes a situation in which there is a single product being manufactured by several suppliers, and the product of each su

Long run output, LONG RUN OUTPUT In the LR whether or not the firm mak...

LONG RUN OUTPUT In the LR whether or not the firm makes profit will depend on the conditions of entry.  For example, when surplus profits exist, there will be new entrants bec

Optimal input combination for maximisation of output, Q. Optimal Input Comb...

Q. Optimal Input Combination for Maximisation of Output? Equilibrium conditions of the firm are identical to the above situation which is, iso-cost line must be tangent to the

Factors responsible for wage differential between occupation, FACTORS RESPO...

FACTORS RESPONSIBLE FOR WAGE DIFFERENTIALS BETWEEN OCCUPATIONS The major cause is demand and supply for the particular labour concerned, but other causes could be: i.

Explain the role of inflation during inflation and deflation, A. Define inf...

A. Define inflation. Explain the role of inflation during inflation and deflation. B. Managerial economics is a form of economics for managers do you agrees? explain you comment

Nature and function of money, The nature and function of money The dev...

The nature and function of money The development of money was necessitated by specialization and exchange.  Money was needed to overcome the shortcomings and frustrations of t

Define the analysis of mathematical functions, Time domain: Time domain is...

Time domain: Time domain is a term which is used to define the analysis of mathematical functions or physical signals, with respect to time. In the time domain, signal or function

What is normative economics, What is Normative economics It is concerne...

What is Normative economics It is concerned with varied corrective measures that a management undertakes under lots of circumstances. It deals with goal determination, goal dev

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd