Simulation Assignment Essay

Simulation Assignment
ECO/365
September 23, 2013

Supply and Demand
The supply and demand simulation examines a local apartment building management company in Atlantis. The simulation takes a look at several scenarios, such as outside market factors and governmental rent control laws. It is a constant with the company to recalculate the rental rates for their two-bedroom apartments. The following questions have been asked by the professor to have a better understanding of the simulations questions and results.
1.) In following Hal Morgan’s recommendations, what is the level of revenue that is maximized under the appropriate rental rate? What is the rental rate that maximizes revenue?
Answer
If Hal wants to maximize the revenue he should use the following calculations:
Revenue = (#of units rented) x (rent per unit). Hal is considering increasing the rent and at the same time lowering the vacancy percentage. What would be the magic number for rental fees per unit? Unfortunately, it is hard to have both. If her raises the rent too much, he will have more available units for rent and therefore results in less revenue. The rental rate that maximizes revenue is around $1,050. If we reduced the residency rate it could help to further increase the revenue, however, at a rental rate of $1000, enough for 1,800 units, the vacancy rate of 10% and a surplus of 200 falls below the maximum possible.

2.) Relative to “Good Life,” what does the supply curve represent throughout the simulation?
Answer
A supply curve represents the relation between supply price and the quantity being supplied.

3.) In Year 2, Good Life considers renting all apartments in order to have a zero vacancy rate. What is the rental rate that they require in order to be willing and able to rent out all apartments? Why do they require a higher rental price?
Answer
Approximately $1,550. When there is a shortage on the rental units it puts pressure on the company to increase the price, a surplus on supply drives prices down.

4.) For Year 3, what is the setting for market equilibrium to be achieved? That is, what are the Equilibrium Price and the Equilibrium Quantity for Good Life to have market equilibrium?
Answer
The equilibrium was met around $1,050 per month. This appears to have no shortage or surplus. If the rental price is greater than the equilibrium the quantity that will be supplies is higher than the quantity demanded. If you were to bring the rental price down so they supply and demand curves meet then this would create a shortage on the rental units. The equilibrium price became lower because demand decreased all the while supply and quantity remained consistent.

5.) With Linitech moving to the area, will this development affect the supply of apartments or the demand for apartments? What are the resulting new Equilibrium Price and Equilibrium Quantity after the arrival of Linitech?
Answer
Yes, as Linitech moves in, there will be a need for more living spaces. Quantity demanded equals quantity supplies only at the equilibrium point. Prices below the equilibrium, the quantity demanded exceeds supplies, and then there is a shortage in the market.

6.) In Year 7, there is an issue involving detached homes and its impact on the market for rental apartments. Will

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