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MBA - Managerial Economics Assume the demand being perfectly inelastic, and supply suddenly doubles due to...

MBA - Managerial Economics

Assume the demand being perfectly inelastic, and supply suddenly doubles due to innovative technique of production. Illustrate in a well labelled graph, the changes in the equilibrium price, and quantity, and also is it advisable to do so from supplier point of view.

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Answer #1

The case is presented below. It is not recommended for the seller to adopt such technology when demand is perfectly inelastic because they will continue to buy the same number of units in spite of a reduced price.

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