Question

In: Economics

If the current market price of a product is a flat rate of $100 and $20...

If the current market price of a product is a flat rate of $100 and $20 per piece. What would be the demand function and inverse demand function?

What if the products flat rate was $100 and $50 per piece?

Expert Solution

Case I: When price of a product is a flat rate of $100 and $20

Demand function: Q = (P-100)/20

Inverse demand function : P = 100 + 20Q

where,

P is price &

Q is quantity demanded

Case II When price of a product is a flat rate of $100 and $50

Demand function: Q = (P-100)/50

Inverse demand function : P = 100 + 50Q

where,

P is price &

Q is quantity demanded

Explanation

Given in the question,

Flat rate = 100

Per piece-rate = 20

Total Price (P) = 100 + 20*Quantity Demanded (Q)

P = 100 + 20Q

The law of demand states that when price of a product increases, its quantity demanded decreases and vice-versa. Therefore quantity demanded is a function of price. Since the opposite is given in the question, it is, therefore, an inverse demand function. Demand function will be

20Q = P - 100

Q = (P-100)/20

In the similar manner , answer can be derived when price of a product is a flat rate of $100 and $50

Rahul Sunny answered 10 months ago

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