Suppose that farmers have a mandatory demand expansion program where all farmers pay a certain amount to fund a promotion program. You have estimated the following market supply and demand functions for the commodity, which include a demand shifter for generic promotion: Qd = 25 - 1.25P + 0.05PROM Qs = 10 + 1.5P - 0.01PROM TC = 0.1 Qs where: Qd = quantity demanded, measured in million pounds, P = price measured in $ per pound, PROM = total generic promotion in million dollars, Qs= quantity supplied, measured in million pounds, TC = total production costs, but does not include the promotion costs.

(a) Assume that in 2023, PROM = 5. Calculate the equilibrium price, quantity, total industry net revenue (total revenue minus TC).

(b) Simulate the equilibrium price, quantity, total industry net revenue if the industry spent zero on promotion, i.e., PROM=0. Based on the demand and supply functions, should the farmers continue this program? Explain. HINT: make sure to compute net revenue and then subtract off $5 million for promotion costs as well, i.e., total revenue minus TC minus PROM.

(c) Now assume the new demand curve is: Qd = 25 - 1.25P + 0.5PROM Based on the new demand function, what is the rate of return on investment due to generic promotion? Use the following formula for ROI: ROI = {(TR - TC - PROM)}/PROM

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Lets go through each part of the question step by step a Given the demand supply and cost functions we can calculate the equilibrium price and quantit... View the full answer