Q1. The demand and supply functions of widget are given as follows:
QD = 350- 2p
QS = -50+2p;
(a) Estimate the equilibrium price and quantity
(b) Graph the market equilibrium
(c) Suppose the price of a substitute good, say gadgets, suddenly falls below the equilibrium price of widgets, show and explain how the new price of gadgets will affect the demand for widgets.
(d) If the price of widgets increases to $110 per unit, what managerial decisions will you makeif you are a seller of widgets? What will happen if other managers make a similar decision?
Q2. For each of the following cases, what is the expected impact on the total revenue of the firm (in percentage terms)? Additionally, what should be the expected managerial reaction(s) to each scenario?
(a) Price elasticity coefficient is 0.4 and a firm raises price by 2 percent
(b) Price elasticity coefficient is 1.5 and a firm lowers price by 5 percent
(c) Price elasticity coefficient is1 and a firm raises price by 1 percent.
Q3. A demand function is defined as follows: QD = 400 -2PX
(a) Solve for PX?
(b)Multiply PX by Q to get total revenue.
(c) Take the derivative of TR with respect to Q to get marginal revenue (MR).
(d) When Q = 0, what is PX? When MR=0, what is Q?
(e) EXTRA CREDIT: Plot the demand, MR, and TR curves in two vertical graphs.
Section 1 Market demand and supply
Q1 Table 1: Market for Widgets
|
Price of Widgets ($)
|
10
|
20
|
30
|
40
|
50
|
|
Quantity of Widgets
|
10
|
8
|
6
|
4
|
2
|
|
Quantity of Widgets
|
2
|
4
|
6
|
8
|
10
|
Refer to Table 1:
(1a) Considering all prices, plot the market transactions for Widgets.
(b) What is the price elasticity of demand for Widgets when the price goes up from $20 to $30? Briefly explain what will most likely happen to total revenue (in percentage terms) if a manager decides to increase price by 2 percent.
(c) Suppose the demand function can be specified as: QW= 100-2p, evaluate the point elasticity of demand when the price is $30. As a manager, will you continue to increase the price? Why?
Section 2: Estimating Demand and Total Revenue
Q2. (a) Use the following function: QW = 100-2p, to estimate the maximum total revenue.
(b) Plot the average, marginal, and total revenue curves.
(c) What is the maximum total revenue in monetary terms?
BONUS QUESTION-
Given the following function: QW= 100-2p, what is the profit maximizing price and quantity when the marginal cost (MC) is 10 units?