and the equation for the demand curve is: Qd = 50,000 – 2,000P. It turns out that the equilibrium price is 20, while the equilibrium quantity is 10,000. a. Use a 10% increase in quantity to estimate (crudely) both the elasticity of supply and the elasticity of demand at the equilibrium quantity. i) Categorize supply and demand as elastic or inelastic at the equilibrium quantity. ii) Is supply or demand relatively more inelastic at the equilibrium
Consider the market for Widgets.
Suppose that the equation for the supply curve is: Qs = 1,000P – 10,000,
and the equation for the
It turns out that the
a. Use a 10% increase in quantity to estimate (crudely) both the elasticity of supply and the
i) Categorize
ii) Is supply or demand relatively more inelastic at the equilibrium quantity?
b. If the government enacted a tax of $3, the loss in
loss in
information to your answer to part (a). Explain.
c. Now estimate (crudely) the elasticity of demand at a quantity of 11,000 by decreasing quantity
by 1,000. Compare your estimate of elasticity to the estimate in part (a). Comment.
2. Suppose the marginal cost curve for a
production of the individual firm. The price of output is 300. If the firm maximizes profit, what
level of output will the firm produce?
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