Econ 106 HW 1

# Econ 106 HW 1 - Economics 106 Managerial Economics...

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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 (fifty-five 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 (fifty-five cents) and vice versa. \$6 \$4 P 80 100 A B Q 1

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e. The point price elasticity at A is .75/1. Therefore for every unit decrease in quantity, price responds with a \$.75 (seventy-five 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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Econ 106 HW 1 - Economics 106 Managerial Economics...

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