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Suppose the estimated supply function for avocados is given by Q S = 58 + 15 p - 20 p f , where p f
Suppose the estimated supply function for avocados is given byQS = 58 + 15p -20pf , wherepf is the price of fertilizer. The estimated demand for avocados is given byQd = 144 -40p +20pt , wherept is the price of tomatoes per pound.
- (3) Solve for the initial equilibrium price and quantity of avocados if the price of fertilizer,pf,is equal to $0.40 per lb. and price of tomatoes,pt, is equal to $0.80 per lb.
- (3) Solve for the new equilibrium price and quantity of avocados if the price of fertilizer,pf, increases to $1.10 per lb. and price of tomatoes,pt, remains $0.80 per lb.
- (3) Use these equilibrium values from parts a. and b. to solve for the price elasticity of demand for avocados.
- (2) Given your calculations, are avocados elastic, inelastic or unit-elastic? Has the total revenue of avocado producers increased, decreased, or not changed as a result of the change in price and quantity?
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