2019 Nov (Linear Demand Slope of Supply Output/Costs/Revenues Consumer Surplus) Paper 3 HL

2019 Nov 

(Linear Demand, Slope of Supply, Output/Costs/Revenues, Consumer Surplus) 

Paper 3 HL

(c) (i) Determine the slope of the market supply function for corn farmers in Nissos.

(ii) Calculate the monthly equilibrium quantity of corn in Noissos.

Equlibrium is where Qd = Qs

1. Find Price

10 - 0.5P = -2 + P

add +2 to each side

12 - 0.5P = P

add +.5P to each side

12 = 1.5P

P = 8

2. Insert P = 8 and solve Qd

Qd = 10 - 0.5P = 

10 - (0.5 (8)) = 

10 - 4 = 6

Qd = 6m at a Price of $8

3. Insert P = 8 and solve Qs

Qs = -2 + P = 

-2 + 8 = 6

Qs = 6m at a Price of $8

4. Q = 6 million

(d) (i) Plot and label Figure 1 the market demand curve and the market supply curve for corn in Nissos.

Qd = 10 - 0.5P

Step 1 - Make Qd/Qs zero and solve

Step 2 - Make P zero and solve

Step 3 - Plug in a number and solve

(ii) Draw and label the margonal revenue (MR) curve for corn for an individual farmer in Nissos on the grid below.

Understand that Perfectly Competitive firms have horizontal MR curves 

and they produce at Profit Maximization which is where the MR = MC.

(iii) Using Figure 1, calculate the consumer surplus in Nissos at the market equilibrium.

.5 x 6 (20 - 8) = $36m

1/2 x (6 x 12)

Area of Triangle = 1/2 (Base x Height)

2019 May (Linear Demand, Slope of Supply, Producer Surplus) Paper 3 HL

2019 May 

Linear Demand, Slope of Supply, Producer Surplus 

Paper 3 HL

 

(a)  Identify the slope of the supply curve.

 

The supply curve is -45 + 4.5P

 

(b)  Outline the reason why the Qs increases as the price increases.

 

·      At a higher price, the profit margin is greater, so there is an incentive to produce and offer more units. (my favorite)

·      As price increases, profits will be maximized at a higher level of output given an upward-sloping MC curve

·      As marginal costs rise, a firm will be willing to offer more units per period on;y at a higher price.

 

An increase in the costs of production has resulted in a new supply function:

Qs = -60 +3P

 

(c)   Draw and label the new supply curve on figure 1

 

Step 1. Make Qs zero and solve

Step 2. Make P zero and solve

Step 3. Plug in a number and solve

 

Step 1

Qs (0) = -60 + 3P

Qs (0) = -60 + (3 x 20)

Qs (0) = -60 + 60

When P = 20, at a price of 20 there will be zero (0) units supplied

 

Step 2

Qs = -60 + (3 x 0)

Qs = -60

When P = 0, at a price of zero there will be -60 units supplied

 

Step 3

Qs = -60 + 3P

Qs = -60 + (3 x 60)

Qs = -60 + 180

Qs = 120

When P = 60, there will be 120 units supplied

What if we chose a price of 80 and solved

Qs = -60 + 3P

Qs = -60 + (3 x 80)

Qs = -60 + 240

Qs = 180

When P = 80, there will be 180 units supplied

Notice that as the cost of goods increase the supply curve shifts to the left

·      An increase in the costs of production will reduce profitability, causing producers to be less willing to supply units of this good.

·      An increase in costs of production will increase the price at which producers will be willing to supply the same quantity.

(e)  Calculate the change in producer surplus resulting from the increase in costs of production.

PS #1 = 20 x 90,000/ 2 = 900K

PS #2 = 20 x 60,000/ 2 = 600K

 

A decrease of 300,000 in Producer Surplus