ASSIGNMENT NO. 1 SPRING 2022 ECO401 DUE DATE JUNE 03, 2022

                                                               ASSIGNMENT NO. 1

                                                                                      SPRING 2022

ECO401

DUE DATE JUNE 03, 2022

SOLUTION:-

Given that:-

Data:

                Q_d =75 - 20P + 2P²                     à (a)

               P = 4 dollars

 Putting the value P in eq. (a).

                                Q_d =75 – 20(4) + 2(4)²  

                                Q_d =75 - 80 + 2(16)   

                                Q_d =75 - 80 + 32

                                Q_d =27

Now,

(a)    Calculate price elasticity of demand when price is 4 dollars. Also, interpret the result.

We know that:

                            Price elasticity = [dQ_d/dP] X [P/Q_d]

                            Q_d =75 - 20P + 2P²

                            dQ_d/dP = 0 - 20(1) + 4P

                             dQ_d/dP =   -20 + 4P

                              dQ_d/dP =   -20 + 4(4)

                             dQ_d/dP =   -20 + 16

                             dQ_d/dP =   -4

                             Price elasticity = [dQ_d/dP] X [P/Q_d]

                             Price elasticity = (-4) X (4/27)

                             Price elasticity = -16/27

                             Price elasticity = - 0.592592……..

                             Price elasticity = - 0.5926

Elasticity is equal to - 0.5926 it is less than 1 [Ignoring (-) sign] which show that the demand curve is inelastic.

Inelastic demand of a product means that if price of product increases there is very small effect on its quantity demand. As price increases, total revenue also increases in case of inelastic demand.

(b)   Calculate total revenue of the industry by using above information in part (a).

We know that:                  

                        Total revenue = TR =P.Q

                        Total revenue = TR = 4 (dollars).27

                        Total revenue = TR = 108 dollars

(c)    If price elasticity of demand of ViraBloc becomes -15/14 then how this will affect the price of ViraBloc?

                         Price elasticity = -15/14

                         Price elasticity = -1.07142857143

                         Price elasticity = -1.0714

Elasticity is -1.0714 it is greater than 1 [Ignoring (-) sign] which shows that the demand curve is elastic.

Elastic demand means when price of a product increases its demand decreases more than the increase in price. As price increases total revenue decreases in case of elastic demand.