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Economics 106
Managerial Economics
Assignment 1
Fall 2010
1.
A firm has estimated the following inverse demand function.
P = 0.1Q + 14
or graphically,
at $4, Q=100
at $6, Q=80
a.
The elasticity from A to B is 1.3
, meaning that for every one percent unit change
in quantity, price changes 1.3 percent in the opposite direction. An increase in
quantity is a decrease in price and a decrease in quantity is an increase in price.
b.
The elasticity from A to B is 2.5
, meaning that for every one percent unit change
in quantity, price changes 2.5 percent in the opposite direction. An increase in
quantity is a decrease in price and a decrease in quantity is an increase in price.
c. The arc price elasticity from A to B is .55/1, thus for every unit increase in quantity
price is decreased by .55 (fiftyfive cents) and vice versa.
d. The arc price elasticity from B to A is .55/1, thus for every unit decrease in
quantity, price increases by 55 (fiftyfive cents) and vice versa.
$6
$4
P
80
100
A
B
Q
1
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View Full Documente. The point price elasticity at A is .75/1. Therefore for every unit decrease in
quantity, price responds with a $.75 (seventyfive cents) increase and vice versa.
f. The point price elasticity at B is .4/1. Therefore for every unit increase or decrease,
price will decrease or increase by $.40 (forty cents) respectively.
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 Fall '08
 Sengupta,J
 Economics

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