ECONOMICS (eco401)

ASSIGNMENT NO.1

Name:
VU Id:

Demand function of this industry is given as follows: Qd= 75-20P+ 2 p2

a) Calculate price elasticity of demand when price is 4 dollars. Also, interpret the result.

ANSWER:
dq P
here we have to find the price elasticity of demand by using its formula: p∈d = ×
dp Q
Price is given as $4:
P = 4 dollars

Qd= 75-20(4) +2( 4)2

Qd= 75-80+32

Qd= 27

Qd =75-20P+ 2 p2

dq
= 0-20+4(4)
dp

dq
= -20 +16 = -4
dp
dq P
formula: p∈d = ×
dp Q

dq
¿−4 ,Q=27 , P=4
dp

4
p∈d = - 4 × = - 0.59
27

INTERPRETATION OF RESULT:
so if the value found is greater than 1 then demand is elastic but if the value is less than
1 the demand is inelastic.

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

ANSWERA:

TR=P×Q

using the information from part(a):

P=4
Q = 27
TR = 4×27 = 108

 c) If price elasticity of demand of ViraBloc becomes -15/14 then how this will affect
the price of ViraBloc.

ANSWER:
−15
p∈d =
14

p∈d = -1.075

the price elasticity of demand is greater than 1 which is 0.175, p∈d <1 that is elastic.
so, the increase in price of ViraBloc will decrease its demand and also decrease the
total revenue.