Economics
Economics
Economics
Practice Problems
Q No 1: . It is known that quantity demanded decreases by two units for each $1 increase in
price. At a price of $5, quantity demanded is ten units.
Answer
Let us assume that the demand function is given by Q = a + bP
It is given that quantity demanded decreases (ΔQ) by 2 units when Price increases (ΔP) by 1 unit
Q = a + bP……….. equation 1
Q=a + (-2)P
Q= a – 2P
At P = $5, Q=10
Q= a – 2P…………….. equation 2
So, 10 = a-2(5)
a = 20
putting the value of a=20 in equation 2
Q = 20 – 2P
a. At price=0, Q=20
b. Q=20-2P
c. Q= 20 – 2P =
20 – Q = 2P
20-Q / 2 = P
P=10-0.5Q
d. TR = PQ= (10 – 0.5Q) X Q
10Q-0.5Q2.
Q NO 2: A market consists of three people, A, B, and C, whose individual demand equations are
as follows:
A: P=35-0.5QA ……………. Eq 1
B: P=50- 0.25QB ……………Eq 2
C: P=40-2.00 QC……………..Eq3
The industry supply equation is given by QS = 40 +3.5 P………Eq4
Answer:
Market demand is the horizontal summation of individual demand. So, first find our individual
demand.
Rearrange Eq 1, 2, 3
QC= 20-0.5P
b. QA=70-2P = 70-2*25 = 20
QB=200-4P = 200-4*25 = 100
QC=20-0.5P = 20-0.5P = 7.5
Answer:
P=10000 – 4Q
a. MR =PQ = (10000 – 4Q) Q = 10000 – 4 Q^2
dPQ/dQ = 10000-4 (2)Q=
MR= 10000 – 8Q
b. MR= 0 = 10000-8Q
10000= 8Q
10000/8 = Q = 1250
So, Q = 1250, P=10000- 8(1250) = 10000 – 5000= 5000
d. P= 10000 – 4Q
6000 = 10000 – 4Q = 4000/4=Q
At price $6000, Q=1000, TR=PQ=6000 X 1000 = 6000000
7000 = 10000 – 4Q = 3000/ 4 = Q
At price $7000, Q=750, TR=PQ=7000 X 750= 5250000
Since TR decreases, demand is elastic.
Q No5: if the demand for handkerchiefs produced by the damn manufacturer has been
estimated to be P= 30 – Q/200.
a. compute the point elasticity at the P= Rs 10 at
P= Rs 15.
b. how does the point elasticity vary with the
price.
Q No6: a manager believes that the demand for his products is given by the equation P= 50 –
Q/100.
a. what is the arc elasticity of demand if price decrease from P= Rs 12 to P= Rs 10.
b. what is the arc elasticity of demand if price increase from P= Rs 10 to P= Rs 12.
Q No7: for the each of the following equations determine whether demand is elastic, inelastic or
unitary elastic at the given price.
a. Q= 100 – 4P at P= Rs20
b. Q= 1500 – 20P At P= Rs5
c. P= 50 – 0.1Q at P=Rs20
Answer
Q No 10: Write a demand equation for which the price elasticity of demand is zero for all prices.
Ans: QD = a