ASSIGNMENT NO.

01(ECO401)
ID:bc200409351

QUESTION NO.01 Demandfunctionofthisindustryisgivenasfollows:

Qd=75-20P+2

Where‘P’is the price in dollars and‘Qd’is quantity demanded.

SOLUTION:

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

d Qd
price elasticity of the demand = X
dP
P
Q

Qd=75-20P+2 P2

Takking derivative of the given demand function with respect to p.

d Qd
=0-20+4P
dP

d Qd
=4P-20
dP

By Putting the value of the price (p=4) ,we get

d Qd
=4P-20
dP

d Qd
=4(4)-20
dP
 d Qd
=-4
dP

Now by putting the value of price in the given demand function we get:

Qd=75-20P+2 P2

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

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

Qd=75-80+2(16)

Qd=75-80+32

Qd=27

The price elasticity of demand :

d Qd P
price elasticity of the demand = X
dP Q

4
price elasticity of the demand =(-4)( )
27

−16
price elasticity of the demand =
27

price elasticity of the demand =-0.59259…..

Elasticity is=-0.59259…..it is less than 1 which shows that the elasticity of demand is
inelastic.which means that if there is change in price of product then it will little effect on
quantity demand of the product or some time it will be remain same.(ignoring minus sign).

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

Total revenue =PxQ

Total revenue =(4)(27)

Total revenue
 =128

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

−15
price elasticity of the demand =
14

price elasticity of the demand =-1.0714….

Elasticity is -1.0714….greater than 1which shows that that elasticity of demand is elastic ehich
means that the little increase in price causes great effect in quantity demand.