Question

The demand function for Schrecklichs is 200 - 4PS - 2PL and the demand function for LaMerdes is 200 - 3PL - PS, where PS and PL are respectively the price of Schrecklichs and LaMerdes. If the world supply of Schrecklichs is 150 and the world supply of LaMerdes is 150, then the equilibrium price of Schrecklichs is:_______.a. $12.50. b. $15. c. $5. d. $10. e. $20.

Answer 1

Answer:

c. $5

Explanation:

Demand = Supply

200 - 4PS -2P_L=150

4PS+2PL=50 ..........(1)

200-3PL-PS=150

3PL+PS=50 ..........(2)

Equation (1) x 3....6PL+12PS=150 ......(3)

Equation (2) x 2...6PL+2PS=100 ........(4)

On Equation (3) and (4)

On eqn (3) and (4)

10PS = 50

PS=5

Substitute Ps value in eqn (1)

4PS+2PL=50

4(5)+2PL=50

2PL = 50-20

2PL=30

PL=15

Thus, the Equilibrium price of Schrecklichs is C) $5