Answer to Question #272099 in Microeconomics for orif

Question

1.      An individual seller’s monthly supply of downloadable e-books is given by the equation

Q^seb = −6.45 3.7Peb – 7.5W

where Q^seb is number of e-books supplied each month, Peb is price of e-books in euros, and W is the hourly wage rate in euros paid by e-book sellers to workers. Assume that the price of e-books is €10.68 and the hourly wage is €10.

a.      Determine the number of e-books supplied each month.

b.     Determine the inverse supply function for an individual seller.

c.      Determine the slope of the supply curve for e-books.

Determine the new vertical intercept of the individual e-book supply curve if the hourly wage were to rise to €15 from €10.

Answer 1

a.a.      Determine the market aggregate supply function.

$Qseb=−64.5+37.5(10.68)−7.5(10)=261$

b..     Determine the inverse market supply function.

Holding all other things constant, the wage rate is constant at €10, so we have

$Qseb=−64.5+37.5Peb−7.5(10)=−139.5+37.5Peb$

We now solve this for P_eb:

$Peb = 3.72 + 0.0267Qeb$

c. Determine the slope of the aggregate market supply curve.

when Q_eb rises by one unit, P_eb rises by 0.0267 euros, so the slope of the supply curve is 0.0267, which is the coefficient on Q_eb in the inverse supply function. Note that it is not 37.5.