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 5 months ago

The current market price is $250 and quantity demanded at that price is 100 for textbooks....

The current market price is $250 and quantity demanded at that price is 100 for textbooks. If price decreases to $100, and quantity demanded increased to 350. How much is the price elasticity of demand. Is the market for the economics textbook elastic, inelastic or unit elastic, and why? Given the information on the price elasticity of demand of textbook, what happens to total revenue for this market for the decrease in price from $250 to $100.

20. Let's say a product was traded in a fully competitive market and the market price...

20. Let's say a product was traded in a fully competitive market and the market price of this product was given at 50. The total cost function C=10+2Q+3Q2 indicating the relationship between the total cost and output of this company was given. Find the profit maximization output and profit margin.

In the market A the price a company charges per product is $ 20 and its...

In the market A the price a company charges per product is $ 20 and its marginal cost is $ 10. In market B, another company sells a product at $ 30 and its marginal cost is $ 20. i) Who has greater market power company A or company B? ii) If we now know that the elasticity of demand is -2 in the market A and -0.3 in the market B. Who has greater market power? Why?

The current stock price is $100, the exercise price is $105.1271, the risk-free interest rate is...

The current stock price is $100, the exercise price is $105.1271, the risk-free interest rate is 5 percent (continuously compounded), the volatility is 30 percent, and the time to expiration is one year (365 days). a. Using the BSM model, compute the call and put prices for a stock option. b. In the previous question (3a) you should get the same price for the call and the put, or very similar (the differences are due to the rounding of the...

Assume that the term structure is flat with a 20% rate. At the end of one...

Assume that the term structure is flat with a 20% rate. At the end of one year there is the possibility of a single, parallel shift in interest rates either to 24% or to 16% or rates could stay the same. Assume annual compounding. Suppose you have a two- year holding period. Under the three interest rate scenarios, what would be the future value of your investment at the end of two years for the following bond investments if you...

Current market price:

Current market price: $95 Strike/exercise price: $100 Risk-free rate (rf): 5% Time (in years): .25 Standard deviation: 25% The standard deviation is the risk associate with an option. The greater the standard deviation, the greater the risk of an option. Use the Black-Scholes Option Pricing Model and calculate the price of this option.

An investor owns 12000 shares of a particular stock. The current market price is 100.what is...

An investor owns 12000 shares of a particular stock. The current market price is 100.what is the "worst case" value of the portfolio in six months. For the purpose of this question, define the worst case value of the portfolio as the value which is such that there is only a 1% chance of the actual value being lower. Assume that the expected. Return and vitality of the stock price are 8.5% and 23% respectively.

You are bullish on Telecom stock. The current market price is $20 per share, and you...

You are bullish on Telecom stock. The current market price is $20 per share, and you have $2,000 of your own to invest. You borrow an additional $2,000 from your broker at an interest rate of 7.5% per year and invest $4,000 in the stock. a. What will be your rate of return if the price of Telecom stock goes up by 9% during the next year? How far does the price of Telecom stock have to fall for you...

ABC Company's current stock price is $100. The risk free rate is 4% a) The maximum...

ABC Company's current stock price is $100. The risk free rate is 4% a) The maximum value of a European put option with an exercise price of $50 and 6 months remaining till expiration is closest to? b)The minimum value of an American call option with an exercise price of $80 and 6 months till expiration is closest to?

Assume that there is a flat yield curve where the current interest rate on all government...

Assume that there is a flat yield curve where the current interest rate on all government bonds is 10% per annum. The government has just issued 1-year, 2-year, 5-year and 10-year bonds, all offering an interest rate of 10%, a face value of $100 and paying interest once per annum. Calculate the market price for each of these bonds, assuming that immediately following purchase of the bonds at $100 there is either a parallel upward movement in the yield curve...