Economics

Economics
Q1. The demand and supply functions of widget are given as follows:

QD = 400- 2p

QS = -100+2.5p;

(a) Estimate the equilibrium price and quantity

(b) Graph the market equilibrium

(c) Suppose the price of a substitute good, say gadgets, changes to $95, show and explain how the new price of gadgets will affect the demand for widgets?

(d) Suppose the price of widgets changes to $120 per unit because of consumer preference, if you are a seller of widgets, what managerial decisions will you make? What will happen if other managers make a similar decision?

Q2. For each of the following cases, what is the expected impact on the total revenue of the firm? Additionally, what should be the expected managerial reaction(s) to each scenario?

(a) Price elasticity coefficient is 0.5 and a firm raises price by 5 percent

(b) Price elasticity coefficient is 2.5 and a firm lowers price by 3 percent

(c) Price elasticity coefficient is1 and a firm raises price by 1 percent

Q3. A demand function is defined as follows: QD = 300 -2PX

(a) What is PX?

(b) Multiply Px by Q to get total revenue.

(c) Take the derivative of TR with respect to Q to get marginal revenue (MR).

(d) When Q = 0, what is PX?

(e) EXTRA CREDIT: Plot the demand, MR, and TR curves in two vertical graphs
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