In a certain kingdom, the demand function for rye bread was q = 181 - 8p and the supply function was q = 13 + 6p, where p is the price in zlotys and q is loaves of bread. The king made it illegal to sell rye bread for a price above 6 zlotys per loaf. To avoid shortages, he agreed to pay bakers enough of a subsidy for each loaf of bread so as to make supply equal demand. How much would the subsidy per loaf have to be?

Question

Quizplus · Accepted Answer

First, we need to find the equilibrium price where supply equals demand:
181 - 8p = 13 + 6p
175 = 14p
p = 12.50 zlotys
Since the king made it illegal to sell bread above 6 zlotys, the actual price will be 6 zlotys. Thus, the subsidy per loaf would be:
Subsidy = Actual Price - Cost to Produce
Subsidy = 6 - (13 + 6(6.25))
Subsidy = 14 zlotys per loaf
Therefore, the correct answer is choice C) 14 zlotys.

In a Certain Kingdom, the Demand Function for Rye Bread