company produces two related products, the demand functions of which are given as 15 2p₂ +3 92 = 11 - 40 P₁+ 7 where p₁ and p2 are the unit prices for the two products and q₁ and q2 are the amounts demanded. Currently, p₁ = 3 and p₂ = 1. The cost function for the company is given by 91 = 11- P₁ - - 3p₂ C = √0.3q1² -0.69192 +0.492² + 1.8q₁ + 1.2q2 + 0.3. We assume that everything that is produced, is sold as well. a) Are the two products complements or substitutes? Explain. b) Estimate the effect on the demand of the first good if the current unit prices are both increased by 0.02 monetary units, using a linear approximation. Give a precise c) Compute the current elasticity of cost C = C(q₁,92) of the first good. economic meaning of this number. (Note that we d) Compute the current marginal cost of the price of the first good. consider cost as a function of the prices now: C = C(P₁, P₂).)

company produces two related products, the demand functions of which are given as 15 2p₂ +3 92 = 11 - 40 P₁+ 7 where p₁ and p2 are the unit prices for the two products and q₁ and q2 are the amounts demanded. Currently, p₁ = 3 and p₂ = 1. The cost function for the company is given by 91 = 11- P₁ - - 3p₂ C = √0.3q1² -0.69192 +0.492² + 1.8q₁ + 1.2q2 + 0.3. We assume that everything that is produced, is sold as well. a) Are the two products complements or substitutes? Explain. b) Estimate the effect on the demand of the first good if the current unit prices are both increased by 0.02 monetary units, using a linear approximation. Give a precise c) Compute the current elasticity of cost C = C(q₁,92) of the first good. economic meaning of this number. (Note that we d) Compute the current marginal cost of the price of the first good. consider cost as a function of the prices now: C = C(P₁, P₂).)

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A company produces two related products, the demand functions of which are given as
15
40
91 = 11- P₁ -
2p₂ +3' , 92 = 11-.
where p₁ and p2 are the unit prices for the two products and q₁ and q2 are the amounts
demanded. Currently, p₁ = 3 and P2 = 1.
P₁+7-3p₂
The cost function for the company is given by
C = √0.3q₁2 -0.69192 +0.4922 +1.8q₁ + 1.2q2 + 0.3.
We assume that everything that is produced, is sold as well.
a) Are the two products complements or substitutes? Explain.
b) Estimate the effect on the demand of the first good if the current unit prices are
both increased by 0.02 monetary units, using a linear approximation.
Give a precise
c) Compute the current elasticity of cost C = C(q1,92) of the first good.
economic meaning of this number.
d) Compute the current marginal cost of the price of the first good.
consider cost as a function of the prices now: C = C(P₁, P2).)
(Note that we

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