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2. Consider a typical linear demand function given by QC; : a bP where the parameters have the following restrictions a > U and b
2. Consider a typical linear demand function given by QC; : a bP where the parameters have the following restrictions a > U and b > 0. Note that the inverse demand curve is given by P : a/b Qty/b. (1.) At a price of zero the quantity demanded, in terms of the parameter a is given by Qd = a. In terms of the parameter a, at what quantity does the demand curve have unitary elasticity? That is, ealeulate the er in terms of a where E : 1? (ii) Show that for any quantity less than your answer to part (1.) the demand curve is elastic. (iii) Show that for any quantity greater than your answer to part (L) the demand curve is inelastic
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