Suppose that King Kanuta, whom you met in your workbook, demands that each of his subjects give him 2 coconuts for every coconut that they consume.The king puts all of the coconuts that he collects in a large pile and burns them.The supply of coconuts is given by S(p_s)  100p_s, where p_s is the price received by suppliers.The demand for coconuts by the king's subjects is given by D(p_d)  6,000  100p_d, where p_d is the price paid by consumers.In equilibrium, the price received by suppliers will be

A) $30.
B) $18.
C) $90.
D) $27.
E) None of the above

Question

Hendy Bryan Fanfan · Accepted Answer

Final Answer : B, Explanation :  In equilibrium, the price received by suppliers must equal the price paid by consumers, so we set the two demand and supply equations equal to each other:100p s  = 6000 - 100p d Simplifying, we get:p s  + p d  = 60The king's demand function indicates that consumers will only buy coconuts when the price is less than or equal to $60, otherwise they won't consume any coconuts. Suppliers will only sell coconuts to the king for a price higher than or equal to $0. In this scenario, the king's incentive is to drive up the price for both consumers and suppliers as high as possible, because he collects more coconuts that way. However, in order for the suppliers to actually provide coconuts, the price that they receive must be higher than the price that the consumers pay. Otherwise, the suppliers would lose money by selling to the king. So, the price received by suppliers must be closer to $0 than the price paid by consumers, since the king's demand function ensures that the price paid by consumers is relatively high. The only option that satisfies this condition is (B), $18.

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