John Barks owns Barks Computer Screens Inc. and wants to identify the supply and demand for screens in his market. The company can produce large screens called Wides or small screens called Squares. The production processes are interchangeable, and production can be adjusted depending on market conditions. The demand for both products is highly elastic in terms of price elasticity, and customers perceive the two products as close substitutes for each other.
Barks needs some help in completing his market analysis. Therefore, he hires you as a consultant and provides you with the results of his analysis. He has found that the functions for supply and demand in his market are:
Where:
Qd = Demand
Qs = Supply
Pw = Average price of Wides
Y = Income in his market
PL = Price of labor
R = Is the average humidity level measured in hums
Create a report answering the following questions:
- Assume the quantities demanded and supplied are a function of price. Given the following conditions, determine the demand and supply curves for Barks Computer Screens Inc.
Pw = $6.00
Y = $1,600.00
PL = $9.00
R = 25
- Calculate the market conditions (shortage, surplus, or equilibrium) for Wides if the following price conditions exist in the market: $1.75, $2.10, and $2.70.
- Determine the market equilibrium conditions in this market for Wides.
- Summarize your recommendations or advice to Barks concerning market conditions and production levels.