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Unformatted text preview: 21,000/30 = $700 Note that between JanuaryFebruary: and between FebruaryMarch: : March
20
$16,000
$16,000/20 = $800
. Therefore, the NYC market demand curve must be: Substitute and for any two months, say, January and February so that: In this case, subtract the 2nd equation from the 1st equation: 32
ECO 204 Chapter 17 & 18: Practice Problems & Solutions for Firms with Market Power: Business Apps and Price Discrimination in ECO 204 (this version 20122013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Substitute in (say) January demand curve:
( ) Thus, the NYC market demand curve is: The price elasticity in March 2010 is: 33
ECO 204 Chapter 17 & 18: Practice Problems & Solutions for Firms with Market Power: Business Apps and Price Discrimination in ECO 204 (this version 20122013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. (b) Show that the Boston market demand curve is
2010. Show all calculations and state any assumptions. and from this calculate the price elasticity in March Answer:
Based on the hint assume the Boston market demand curve is linear. To compute the demand curve we need the prices: Units Sold in Boston:
Boston Revenues:
Boston Price: Dolce & Havana: Boston Market January – March 2010
January
February
20
10
$5,000
$3,500
$5,000/20 = $250
$3,500/10 = $350 March
10
$3,500
$3,500/10 = $350 The Boston market demand curve is: Substitute and for any two months, say, January and February so that: In this case, subtract the 2nd equation from the 1st equation: Substitute in (say) January demand curve:
( ) Thus, the Boston market demand curve is: The price elasticity in March 2010 is: 34
ECO 204 Chapter 17 & 18: Practice Problems & Solutions for Firms with Market Power: Business Apps and Price Discrimination in ECO 204 (this version 20122013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. 35
ECO 204 Chapter 17 & 18: Practice Problems & Solutions for Firms with Market Power: Business...
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