This preview shows pages 1–5. Sign up to view the full content.
1
McGill
Faculty of Engineering
MIME 310
Engineering Economy
Tutorials
Chapter 1.
Introduction
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document 2
McGill
Faculty of Engineering
MIME 310
Engineering Economy
Tutorials
1.1 Consider the demand schedule
shown to the right.
Tangent
Q
i
t
t
Price
Quantity
Demand
0
Graphical Method
Must be origin
Plot the demand curve and approx
imate the point elasticity at various
points using the graphical method.
Compare these results with the arc
elasticities determined between
adjacent points.
E
D
= ( Q
i
 Q
t
)
Q
t
P
t
P
t
= ( Q
i
 Q
t
)
P
t
P
t
Q
t
= ( Q
i
 Q
t
) / Q
t
P
Q
Point
Price
($/unit)
Quantity demanded
(units/period)
A
7
450
B
6
750
C
5
1250
D
4
2000
E
3
3250
F
2
4750
G
1
8000
3
McGill
Faculty of Engineering
MIME 310
Engineering Economy
Tutorials
0
1
2
3
4
5
6
7
0
1000
2000
3000
4000
5000
6000
7000
8000
QUANTITY
(units/period)
PRICE
($/unit)
4400
6100
7400
To verify, AE
CD
= ( (2000  1250) / (2000 + 1250) ) / ( (4  5) / (4 + 5) ) = 2.08
Likewise, AE
DE
= 1.67 and AE
CE
= 1.78
C
D
E
At E:
(7400  3250) / 3250 = 1.28
At C:
(4400  1250) / 1250 = 2.52
At D:
(6100  2000) / 2000 = 2.05
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
McGill
Faculty of Engineering
MIME 310
Engineering Economy
Tutorials
1.2 Consider the demand function [
Q = C / P
x
] in which C and x are
constants.
How does the elasticity vary along this demand function (hyperbola)?
E
D
=
(dQ/dP) / (Q / P)
dQ/dP = x•C / P
x+1
E
D
=
(x•C / P
x+1
) (P / Q)
=
(x•C / P
x+1
) (P•P
x
/ C)
= x
\
Elasticity is constant and equal to x.
Note:
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 10/06/2009 for the course MIME 310 taught by Professor Bilido during the Summer '08 term at McGill.
 Summer '08
 Bilido

Click to edit the document details