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1.

the demand curve Q = 2000 2 P,for product X is given as

Given Q = 2000 2 P, therefore P = 1000 Q/2

a) how many units will be sold at $10?

Q = 2000 2 P

Therefore, Q = 2000 - 2 (10) = 1980

b) write equations for total revenue and marginal revenue ( in terms of P)

TR = P *Q = P (2000 2P) = 2000 P 2 P2 ( in terms of P)

TR = P *Q = Q (1000 Q/2) = 1000 Q Q2/2

This is important as we can find Marginal revenue only from TR (in terms of Q)

MR = TR /Q (one unit change in TR because ofa unit change in Q)

Therefore MR = 1000 Q

MR = 1000 Q = 1000 (2000 2P) = 2P 1000 (in terms of P)

c) what will be the total revenue at a price of $70? What will be the marginal revenue?

TR = 2000 P 2 P2, substitute for P =70 TR = 130200

MR = 2P 1000, substitute for P =70 MR = -860

d) what is the point elasticity at a price of $70?

Ep = (Q /P)* (P/Q)

You get (Q /P) = -2 by differentiating Q = 2000 2 P, substitute the value of Q


when P = 70

Therefore Ep = -2 * (70 / 1980) = -0.0753

e) at what price would elasticity be unitary?

Ep = 1, therefore 1= -2 * P/(2000 2P)

= P/ (2000-2P), therefore P = 500


f) calculate arc elasticity at the interval between $60 and $70.

Ep = (Q2 Q1)/(P2-P1) * (Q2 + Q1)/(P2 + P1)

We get for P = 60, Q = 1880 and for P = 70, Q = 1860

Therefore Ep = (1880- 1860)/(60-70) * (1880 + 1860)/(60 + 70) = - 0.0695

2. The ABC company manufactures AM/FM clock radios and sells on average 3000 units
monthly at $25 each to retail stores. Its closest competitor produces a similar type of radio
that sells for $28.

a) if the demand for ABCs product has an elasticity coefficient of -3, how much will it sell
per month if the price is lowered to $22.

Ep = (Q2 Q1)/(P2-P1) * (Q2 + Q1)/(P2 + P1)

Where Ep = -3, Q2 = ?, Q1 = 3000, P2 = 22, P1 = 25, substituting in the arc


elasticity formula above, Q2 = 4421.05 approx 4421

b) the competitor decreases its prices to $24. It cross-elasticity between the two radios is
0.3, what will be the ABCs monthly sales be?

Cross elasticity Ep = (Qx2 Qx1)/(Py2-Py1) * (Qx2 + Qx1)/(Py2 + Py1)

Assuming Qx1 = 3000, Qx2 = ?, Py2 = 24, Py1 = 28

Substituting, Qx2 = 2864.66 approx 2864

Assuming Qx1 = 4421, Qx2 =?, Py2 = 24, Py1 = 28

Substituting, Qx2 = 4221

3) In the electronic market of Nehru Place, the demand function as analysed by Pankaj
Electronics for its LCD TV sets is P = 12000 6Q. find out,

a) the marginal revenue function for the same,

TR = P *Q = 12000 Q 6 Q2

MR = TR /Q = 12000 12 Q = 1000 Q
b) at what price and quantity will marginal revenue be zero

putting MR = 0, Q = 1000, P = 6000

4) In the electronic market of Nehru Place, the demand function as analysed by Pankaj
Electronics for its LCD TV sets is P = 12000 6Q. find out,

a) what is the point elasticity at a price of $70,

Ep = (Q /P)* (P/Q)

Differentiate Q = 2000 (1/6) P, (Q /P = -1/6

For P = 70, Q = 1988

Ep = -1/6*(70/1988) = -0.0058

b) at what price would elasticity be unitary?

Ep = 1, therefore 1= -1/6 * P/(2000 P/6)

6(2000 P/6) = P

P = 6000