MANAGERIAL ECONOMICS: MARKET MECHANISM

Consider the following: If the price per unit of good A is P200 quantity purchased is valued at 4,700 units and quantity supplied equals 1,400 units. If price changes by P1, quantity demanded changes by 4 units for consumer demand and quantity supplied changes by 2 units.

Required (Determine the demand and supply functions. Show complete solution)

CASE 1

A.Determine the price and quantity at equilibrium, using algebraic solution.

B.Graph demand and supply curves on one set of axes and highlight the following: price-intercepts of demand and supply curves, quantity-intercepts of demand and supply curves, and the equilibrium point. (Make sure to LABEL your graph accordingly.)

CASE 2

2.From the demand function determined in number 1:

A.Set up a demand schedule for this function and determine the price elasticity of demand at various P and Qd combinations using point-price elasticity formula. (Make sure that all elasticity concepts are found on the same demand curve.)

B.Determine the TR and MR functions.

C.Graph the demand curve and the TR curve (TR curve just below the demand curve)

D.At what P and Qd combination will TR be maximum?

CASE 3

3.Suppose the own price elasticity of demand for good X is -2, its income elasticity is 2.5, and the cross-price elasticity of demand between it and good Y is -5.

A.Interpret the elasticity coefficients.

B. Determine how much consumption of this good will change if:

B.1 The price of good X increases by 6%.

B.2 The price of good Y increases by 12%.

B.3 Income falls by 5%.