Question
Suppose the market demand for a product is given by the following inverse demand equation P = 100 2Q. Furthermore, you know that initially 40
Suppose the market demand for a product is given by the following inverse demand equation P = 100 2Q. Furthermore, you know that initially 40 units are demanded in this market. Then, there is an increase in price by 50%.
a. What is the price elasticity of demand at the initial quantity demanded of 40 units? Interpret the figure you get for elasticity.
b. Will the change in price increase or decrease the total revenue of the producers of this product? By how much?
c. Graph and calculate the price effect and the quantity effect. Does this match your answer to part (b)?
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