Mba 5004 Week 2
A’rel Boies
South University
MBA 5004
Professor Zhenhn Jin
February 12, 2017 My calculations for the Vanda-Laye Corporation’s production of oven mittens by the, led to the following conclusions. . A price ceiling lower than $3.55 will cause a shortage in the market with increased demand and decreased supply. The equilibrium price point for manufacture is $3.55. Producers can supply 20 units and demand will equal supply. A floor price greater than the $3.55 will cause over production, and thus a surplus of the mittens. Consumers would reject the higher prices for the product and cause a decrease in demand. An increase in the prices of Sub Good A and Complimentary Good C, independently applied, will cause opposing effects . …show more content…
Increasing the price of Sub Good A will cause an increase in the demand for the mittens, while an increase in the complementary Good C, will lead to a decrease in demand for the mittens. Below are my calculations which are based on the formulas provided for Quantity supplied and Quantity demanded.
Qs=45-6.9P where Qs is Quantity Supplied and P is Price.
Qd=-15+10P where Qd is Quantity Demanded and P is Price.
Equilibrium Price Calculation
I plotted a linear regression on a graphing calculator inputting the intervals and price points manually. The intersection function of the TI-89 graphing calculator confirmed the Equilibrium price point calculated manually. The formula for the equilibrium set the quantity demanded (Qd) equal to the quantity supplied (Qs). The equilibrium formula is then:
45-6.9P=-15+10P
We can test the price of $3.55 after solving for P.
45-6.9(3.55)=-15+10(3.55)
Both sides of the equation come out to be 20.5; meaning supply equal demand at this point.
$4 Price Floor and $3 Price Ceiling Effects and Calculation
Inputting the given price points for analysis into the formulas above produces the quantity demanded and supplied at both points. Table 1.1 shows that at the price ceiling of $3 per unit, a deficiency occurs as demand rises and the quantity supplied drops. This is because manufacturers are incapable of keeping up with purchaser demand at such a low price cost effectually. Conversely, with a price floor of $4 per unit, over production occurs. Customers will not purchase as much as is being produced because of the increased price and less purchasing power.
Price Quantity Demanded Quantity Supplied Market Effect
$3.00 24 units 15 units Shortage
$3.55 20 units 20 units Equal Demand/Supply
$4.00 17 units 25 units Surplus
Table 1.1- Surplus, Shortage, and Equilibrium Levels at Three Price Points
Market Effects on the Demand Curve with Independent Price Increases of Sub Good A and Complementary Good C
An upsurge in the price of Sub Good A, (a product that can be swapped for the mittens, such as a square oven pad or mitt) will increase the demand for the oven mitten, as it is the lower priced option.
The demand curve for a good complementary to the oven mitten, (such as a baking dish purchased during the holiday season for example) will behave contrariwise. As the price of the dish rises, the demand for both the dish and the oven mitten will decline.
Bibliography
Compliments and Substitutes. (n.d.). Living Economics. Retrieved February 2017, from http://livingeconomics.org/article.asp?docId=289
Hirschey, M. (2009). Fundamentals of Managerial Economics (9th ed.). South-Western Cengage Learning. Retrieved 2017
(2006). Price Floors and Ceilings. In Handbook. Experimental Economics Center. Retrieved February 2017, from EconPort:
http://www.econport.org/content/handbook/Equilibrium/Price-Controls.html
South University
MBA 5004
Professor Zhenhn Jin
February 12, 2017 My calculations for the Vanda-Laye Corporation’s production of oven mittens by the, led to the following conclusions. . A price ceiling lower than $3.55 will cause a shortage in the market with increased demand and decreased supply. The equilibrium price point for manufacture is $3.55. Producers can supply 20 units and demand will equal supply. A floor price greater than the $3.55 will cause over production, and thus a surplus of the mittens. Consumers would reject the higher prices for the product and cause a decrease in demand. An increase in the prices of Sub Good A and Complimentary Good C, independently applied, will cause opposing effects . …show more content…
Increasing the price of Sub Good A will cause an increase in the demand for the mittens, while an increase in the complementary Good C, will lead to a decrease in demand for the mittens. Below are my calculations which are based on the formulas provided for Quantity supplied and Quantity demanded.
Qs=45-6.9P where Qs is Quantity Supplied and P is Price.
Qd=-15+10P where Qd is Quantity Demanded and P is Price.
Equilibrium Price Calculation
I plotted a linear regression on a graphing calculator inputting the intervals and price points manually. The intersection function of the TI-89 graphing calculator confirmed the Equilibrium price point calculated manually. The formula for the equilibrium set the quantity demanded (Qd) equal to the quantity supplied (Qs). The equilibrium formula is then:
45-6.9P=-15+10P
We can test the price of $3.55 after solving for P.
45-6.9(3.55)=-15+10(3.55)
Both sides of the equation come out to be 20.5; meaning supply equal demand at this point.
$4 Price Floor and $3 Price Ceiling Effects and Calculation
Inputting the given price points for analysis into the formulas above produces the quantity demanded and supplied at both points. Table 1.1 shows that at the price ceiling of $3 per unit, a deficiency occurs as demand rises and the quantity supplied drops. This is because manufacturers are incapable of keeping up with purchaser demand at such a low price cost effectually. Conversely, with a price floor of $4 per unit, over production occurs. Customers will not purchase as much as is being produced because of the increased price and less purchasing power.
Price Quantity Demanded Quantity Supplied Market Effect
$3.00 24 units 15 units Shortage
$3.55 20 units 20 units Equal Demand/Supply
$4.00 17 units 25 units Surplus
Table 1.1- Surplus, Shortage, and Equilibrium Levels at Three Price Points
Market Effects on the Demand Curve with Independent Price Increases of Sub Good A and Complementary Good C
An upsurge in the price of Sub Good A, (a product that can be swapped for the mittens, such as a square oven pad or mitt) will increase the demand for the oven mitten, as it is the lower priced option.
The demand curve for a good complementary to the oven mitten, (such as a baking dish purchased during the holiday season for example) will behave contrariwise. As the price of the dish rises, the demand for both the dish and the oven mitten will decline.
Bibliography
Compliments and Substitutes. (n.d.). Living Economics. Retrieved February 2017, from http://livingeconomics.org/article.asp?docId=289
Hirschey, M. (2009). Fundamentals of Managerial Economics (9th ed.). South-Western Cengage Learning. Retrieved 2017
(2006). Price Floors and Ceilings. In Handbook. Experimental Economics Center. Retrieved February 2017, from EconPort:
http://www.econport.org/content/handbook/Equilibrium/Price-Controls.html