Question

Curly, Larry, and Moe are all buyers of hammers. Curly’s demand function is QC = 520 - 13P, Larry’s demand function is QL = 40 - P, and Moe’s demand function is QM = 200 - 5P. Together, these three constitute the entire demand for hammers. At what price will the price elasticity of market demand be -1?

Answer 1

Answer -

Price elasticity of demand = -1

Curly's demand function = 520 - 13P

Larry's demand function = 40 - P

Moe's demand function = 200 - 5P

Market demand function = curly's demand function +Larry 's demand function + moe's demand function

Market demand function = 520 - 13 P + 40 - P + 200 - 5 P

= 760 - 19 P

Here, when price increase by 1 , then quantity demanded will increase by - 19

Price elasticity of demand =( ∆Q ÷ ∆P) × (P ÷ Q)

-1= (-19 ÷ 1)×(P ÷760-19P)

(-1 ÷ -19) = (P÷ 760- 19P)

after cross multiplication;

760 - 19 P = 19 P

760 = 19 P + 19 P

760 = 38 P

760 ÷ 38 = P

So , the price of the product = 20

When price of hammer is 20, then the elasticity of demand is -1.