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ECO401 Assignment No 1 Solution Spring 2022

by Zain Ali
ECO401 Assignment No 1 Solution Spring 2022

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ECO401 Assignment No 1 Solution Spring 2022

Question no 1 Solution:

𝑄𝑑 = 75 − 20𝑝 + 2𝑃 power 2

𝑃 = 4

(𝑃𝑟𝑖𝑐𝑒 𝑖𝑛 𝑑𝑜𝑙𝑙𝑒𝑟𝑠 )𝑄𝑑 (𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝐷𝑒𝑚𝑎𝑛𝑑) 𝑃𝑢𝑡𝑡𝑖𝑛𝑔 𝑃 𝑉𝑎𝑙𝑢𝑒 𝑖𝑛 𝐸𝑞𝑢𝑎𝑡𝑖𝑜𝑛 𝑛𝑜𝑤. a) Calculate price elasticity of demand when price is 4 dollars. Also, interpret theresult.

𝑄𝑑 = 75 − 20(4) + 2(4)power 2

𝑄𝑑 = 75 − 80 + 32

𝑄𝑑 =27

b) Calculate total revenue of the industry by using above information in part (a).

𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝜋

𝑤ℎ𝑖𝑐ℎ 𝑖𝑠 𝑒𝑞𝑢𝑎𝑙 𝑡𝑜

𝜋 = 𝑃 × 𝑄

= 4 × 27

=108

c) If price elasticity of demand of ViraBloc becomes – 15/14 then how this will affect the price of ViraBloc?

𝑑𝑒𝑚𝑎𝑛𝑑 𝑜𝑓 𝑉𝑖𝑟𝑎𝐵𝑙𝑜𝑐 𝑏𝑒𝑐𝑜𝑚𝑒 − 15 14 𝑑𝑖𝑣𝑖𝑑𝑒 𝑏𝑜𝑡ℎ 𝑤ℎ𝑖𝑐ℎ 𝑖𝑠 𝑒𝑞𝑢𝑎𝑙 𝑡𝑜 − 1.0714

As we know that when the answer lie in center it’s called unitary if the answer is going in positive its called Elastic if the answer is less than one mean in minus its mean it’s going in negative it’s called in elastic. So the nature of the Virabloc is in elastic and in elastics the Increase the price as much as you like, quantity demanded almost the same.

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