Total expenditure is maximized at the price where the absolute value of the elasticity is 1. Hence, look for such that: P = 1 BDP = A BP – BDP + BP = A BP(D + 1) = A P = 2.4 Let denote the price of a product that is produced using a single input whose P price is The demand function for the product is and the supply W. Qd = 10 -, function is if and if How does the equilibrium price Qs = P > W Qs = 0 P W. ≤ depend on What is the elasticity of the equilibrium price with respect to W? P W when W = 1? Answer: When < quantity supplied is zero. Hence, no exchange takes place between buyers P W, and sellers. When > the equilibrium price is expressed as: P W, The elasticity of the equilibrium price with respect to when = 1 is 0.5. P W W Explanation: Let > P W.
Total expenditure is maximized at the price where the absolute value of the elasticity is 1. Hence, look for P such that: = 1 BDP = A – BP BDP + BP = A BP(D + 1) = A P = 2.4 Let P denote the price of a product that is produced using a single input whose price is W. The demand function for the product is Qd = 10 -, and the supply function is Qs = if P > W and Qs = 0 if P ≤ W. How does the equilibrium price depend on W? What is the elasticity of the equilibrium price P with respect to W when W = 1? Answer: When P < W, quantity supplied is zero. Hence, no exchange takes place between buyers and sellers. When P > W, the equilibrium price is expressed as: The elasticity of the equilibrium price P with respect to W when W = 1 is 0.5. Explanation: Let P > W.