Managerial Economics Homework #1 Questions

The market for Oil is competitive.

1—what are the four conditions required for a market to be competitive?

2—if the demand is P = 240 – 0.5Q & supply is P = 15 + 2Q, what is the equilibrium price and quantity in this market?

3--Calculate the elasticity of demand at a price of 90 (this is not the price in #1). Give an economic interpretation to your answer. Is demand elastic, unit elastic or inelastic at this price?

4-- To enable more citizens to buy more gasoline, the Government decides to give gasoline producers a subsidy of $9 per unit– Using the supply and demand equations from #1. What price will consumer’s pay and how much gasoline will they buy? How much will the Government spend on the subsidy? What will be the change in producer surplus?