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Question: A raw commodity is traded in a market where it has been reliably estimated that

Qd = 95 - 1.8P  and  Qs = -12.4 + 2.1P

Its price adjusts in proportion to excess demand at the rate

dP = 0.28(Qd - Qs)
dt

where t is measured in months. The current spot price is $29.35 a tonne. In 4 months' time your company will need to buy a large amount of this commodity. If someone offers you a forward contract and guarantees to supply the amount you need at a price of $24.75 would it be worth signing this contract?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92291194

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