BC210400581

HAFSAH BADAR

ECO 401 ASSIGNMENT 1 SOLUTION

a) Calculate price elasticity of demand when price is 4 dollars. Also, interpret the
P= 4
Qd = 75 – 20p + 2p2
dQ
Price Elasticity =
dP
× Qp
dQ
To find
dP

dQ d (75−20 p+2 p2 )
dP = dp
dQ
= 0 – 20(1) + 2(2p)
dP
dQ
= -20 + 4p
dP
Whereas p = 4
dQ
= -20 + 4(4)
dP
dQ
= -20 + 16
dP
dQ
=-4
dP
Putting value of P to find Q
Qd = 75 – 20(4) + 2(4)2
Qd = 75 – 80 + 2(16)
Qd = 75 – 80 + 32
Qd = - 5 + 32
Qd = 27
 dQ P
Price elasticity = ×
dP Q
4
= - 4 × 27

= -0.592
As we know that the absolute value (ignoring minus sign) is less than 1 so it is
inelastic.

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

Total revenue (TR) = Price ×Quantity (Q×P)
TR = P×Q
TR = 4×27
TR = 108
−15
c) If price elasticity of demand Vira Bloc becomes then how this will effect
14
the price of Vira bloc?

−15
Price Elasticity =
14

Price Elasticity = -1.071

Price Elasticity is -1.071 which is greater than one (ignoring minus sign) so it
is point elastic.

Elastic demand means when price of any product increases, its demand
decreases more than the increase in price. As price increases total revenue
decreases in case of elastic demand.

Type equation here .

Type equation here .