In this problem, p is in dollars and q is the number of units. Suppose that the

Question

In this problem, p is in dollars and q is the number of units.

Suppose that the demand for a product is given by

pq + p + 100q = 50,000.

(a) Find the elasticity when

p = $390. (Round your answer to two decimal places.)


(b) Tell what type of elasticity this is.

Demand is elastic.

Demand is inelastic.   

Demand is unitary elastic.

(c) How would a price increase affect revenue?

Revenue is unaffected by price.

An increase in price will result in a decrease in total revenue.

An increase in price will result in an increase in total revenue.

Explanation / Answer

at p=390, q=101.24

we have to calculate dq/dp.

differentiate given function wrt p

pdq/dp+q+1+100dq/dp=0

dq/dp at given p=-0.21

elasticity,E=dq/dp*p/q=-0.81

b)

When E is between -1 and 0 , demand is inelastic, and marginal revenue is negative i.e. increase in price will decrease in revenue.

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