Question

Given demand curve for Silvana Chocolates Company ( SCC )

a. How many Bars could be sold for $100?

b. At what price would SCC sales fall to zero?

QD = 10,000 - 25P.

c. What is the total revenue (TR) equation for SCC in terms of output, Q? What is the marginal revenue equation in terms of Q?

d. What is the point-price elasticity of demand when P = $150 ? What is total revenue at this price? What is marginal revenue at this price?

e. Suppose that the price of SCC rose to P = $250.What would be the new point-price elasticity of demand? What is total revenue at this price? What is marginal revenue at this price?

f. Suppose that the supply Curve of SCC is given by the equation QS = -5,000 + 50P.What is the relationship between quantity supplied and quantity demanded at a price of $300?

g. In this market, what is the equilibrium price and quantity?

Answer 1

Q)

(a) QD = 10000 - 25P

At P= 100, we have, QD = 10000 - 25*100 = 7500

(b) QD = 0 => 10000 - 25P = 0

=> P = 10000/25 = 400

(c) TR = PQ = (400 - Q/25)*Q = 400Q - Q²/25

MR = dTR/dQ = 400 - 2Q/25

(d) price elasticity of demand = (chnage in quantity demanded / change in price)*(initial price/ initial quantitiy)

= (-25)*(150 / 6250)

= -0.6

Total revenue = 150*6250 = 937500

Marginal revenue = 400 - 2*6250/25 = -100

(e)

price elasticity of demand = (chnage in quantity demanded / change in price)*(initial price/ initial quantitiy)

= (-25)*(250 / 3750)

= -1.66

Total revenue = 250*3750= 937500

Marginal revenue = 400 - 2*3750/25 = 100

(f) at p = 300, QD = 10000 - 7500 = 2500

QS = -5000 + 50*300 = 10000

Thus, supply = 4*demand

(g) Equilibrium occurs when demand = supply

=> 10000 - 25P = -5000 + 50P

=> 75P = 15000

=> P = 200

=> Q = 10000 - 25*200 = 5000