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Answer to Question #3740 in Microeconomics for krithika

Question #3740
Demand function for a cola-type soft drink in general is q= 20 – 2P, where Q stand
for quantity and P stands for price.
<br>a. Calculate point elasticities at prices of 5 and 9. Is the demand curve elastic or inelastic at these points?
<br>b. Calculate arc elasticity at the interval between P = 5 and P = 6.
Expert's answer
Point elasticity (Ed).
Ed=&delta;Q/&delta;P * P/Q , where &delta;Q/&delta;P= -2
P1=5, Q1=20-2*5=10;
P2=9, Q2=2;
Point elasticity at the price P1: Ed1 = -2 * 5/10= -1. Unitarily elastic demand.
Point elasticity at the price P2: Ed2 = -2 * 9/2= -9. The demand curve is elastic.
Arc elasticity (Ed).
Ed=&delta;Q/&delta;P * (P1+P2)/(Q1+Q2 )

P1=5, Q1=10;
P2=6, Q2=8;
Ed1= -2/1 * 11/18= -11/9=-1.22
The demand curve is elastic.

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Comments

Assignment Expert
29.03.12, 17:11

It's given that&
<span style="font-family: Arial, sans-serif; font-size: 14px; line-height: 24px; text-align: justify; text-indent: 27px; background-color: rgb(250, 250, 250); ">q= 20 – 2P</span><div><span style="font-family: Arial, sans-serif; font-size: 14px; line-height: 24px; text-align: justify; text-indent: 27px; background-color: rgb(250, 250, 250); ">So we can find derivative dq/dp=d(20-2p)/dp=-2</span></div>

Scott
28.03.12, 12:48

How do you the Q/P = -2 in the point elasticity equation?

Assignment Expert
14.10.11, 18:35

You are welcome. We're pleased to help you

umair
19.09.11, 14:34

Good .Thanks

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