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Pakistan cement industry has shown very fast progress in last few years and has become a leading sector of the economy. At the time of inception, there were only four cement plants in Pakistan which has now grown to over 30 units. Cement manufacturers have also expanded their production capacity to meet higher demand because of construction projects and CPEC. Maple Leaf Cement Factory Limited is a reputable largest manufacturer of cement in Pakistan. The company was set up in 1956. Suppose the quantity demanded and quantity supplied functions of cement industry in starting week of current month are:
Qd = 5000-6P
Where ‘P’ is the price in rupees per bag of cement and ‘Qd’ is quantity demanded of cement in number of bags. ‘Qs’ is quantity supplied of cement in number of bags.
a. Calculate the market equilibrium level of price and quantity.
b. Calculate price elasticity of demand using point elasticity method when the company is in equilibrium and interpret the result.
c. What will happen to supply of cement, equilibrium price and equilibrium quantity of cement if government gives subsidy to cement manufacturers? Graph is not required.
(Marks: a: 2+2, b: 2+1, c: 3)