Asked by dorian hawthorne on May 31, 2024
Verified
A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker bought and sold at the equilibrium price,what is his profit
A) $1
B) $2.5
C) $3
D) $0
Equilibrium Price
The price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers, resulting in market balance.
Profit
The financial gain that results when the revenues generated from business activities exceed the expenses, taxes, and costs incurred.
- Evaluate the bid-ask differentials and the income generation of market creators across varied dealing cases.
Verified Answer
KJ
Keisha JohnsonJun 06, 2024
Final Answer :
D
Explanation :
Since demand and supply are equal in this scenario, the equilibrium price will be the average of the two middle prices, which is $8.50. As both buyers and sellers are willing to trade at this price, the market maker can buy from a seller at $8 and sell to a buyer at $9, making a profit of $1 for each widget traded. Since there are 11 buyers and 11 sellers, and each trade will earn a profit of $1, the total profit for the market maker will be $11. Therefore, the correct answer is D, $0, as none of the answer choices match the actual profit earned in this scenario.
Learning Objectives
- Evaluate the bid-ask differentials and the income generation of market creators across varied dealing cases.