The market for olive oil in Spain is perfectly competitive. Market estimates indicate that the...
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The market for olive oil in Spain is perfectly competitive. Market estimates indicate that the demand and supply of olive oil are given by Supply function: =125+32 Demand function: =325022 where is the price (per thousand liters, measured in ) and is the quantity of olive oil supplied and demanded (in thousands of liters). a) Determine the equilibrium price and quantity. b) Determine the consumer surplus, producer surplus, and total surplus (social gain) at the market equilibrium. c) Some of the olive oil producers form an association to put lobbying pressure on the government. As a result, the government decides to set a price floor (a limit on how low a price can be charged for a product) at Pf. (Note: Pf is equal to 2100 +x*5 where x are 94. ) Calculate and comment on the new consumer surplus. d) Explain in words why the olive oil producers association would be in favor of a price floor. e) Verify by showing the relevant calculations whether the price floor set in part c is indeed beneficial for the producers. f) Write down (do not solve) the optimization problem that the olive oil producers association would need to solve to find the optimal price floor. Explain in words the optimization problem you have written down.
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