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Problem 3 (Elasticity of demand) Consider the demand function D(p) = 2 / p'5 and the supply function 3(p) = p where e > 1
Problem 3 (Elasticity of demand) Consider the demand function D(p) = 2 / p'5 and the supply function 3(p) = p\" where e > 1 and p > 1. 1. Find utility and cost functions consistent with the demand and supply function. 2. Show that the point-price elasticities of demand and supply are constant and equal to e and ,0 respectively (constant elasticty of demand / supply). 3. For given values 6 and p, calculate the competitive equilibrium price and quantity. 4. Illustrate your solution in a diagramme, and explain what happens as we vary elasticity of supply ,0, but keep 6 xed
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