Consider the market for marijuana. Suppose that if marijuana is legal, 100 consu
ID: 1218026 • Letter: C
Question
Consider the market for marijuana. Suppose that if marijuana is legal, 100 consumers each have a marginal benefit curve: MB_i = 600-100 Q_i for 0 lessthanorequalto Q_i lessthanorequalto 6, = 0 for Q_i > 6, for i = 1, 2,...,100 Also, 20 marijuana farmers each have a marginal cost curve: MC_j = 5 Q_j for j = l,2,...,20 Find the equilibrium quantity and price in the market if marijuana is legal. Suppose the government makes marijuana illegal. The result is that 50 of the 100 consumers decide never to buy the product simply because it is now illegal (so MB_i = 0 for all Q_i, for i = 1, 2,...,50) whereas the other 50 continue to have the MB curves given above. Also, 10 of the farmers leave the business (with the other 10 continuing to have the MC curves given above). What is the new equilibrium price and quantity?Explanation / Answer
A. If it is legal, equilibrium will be establisd where
MB = MC
60000-10000Q= 5(20)Q
60000-10000Q = 100Q
10100Q=60000
Q= 5.9
b. MB = 30000-5000Q
MC = 50Q
Equilirium is where
30000-5000Q = 50Q
5050Q = 30000
Q = 30000/5050
Q = 5.9