give example for a static mathematical model?

Solutions

Expert Solution

We look at the case of static mathematical model from industry. In marketing a commodity generally

there is a balance between supply and demand. Both factors depend on price. Demand for the commodity

will be low when the price is high and it will increase as the price drops. If we take the simplistic linear

case the relationship between demand (Q) and price (P) might be represented by the straight line.

Fig: (a) Linear Market Model

Let us model this situation mathematically. If we denote price by P, supply by S and demand by D, and

assuming the price equation to be linear we have

D = a-bP

S = c + dP

S = D

In the above equations, a, b, c, d are parameters computed based on previous market data. Equation S

D says supply should be equal to demand so that market price should accordingly be adjusted. Let us

take values of a = 500, b = 2000, c = —50 and d =1500. Value of c is taken negative, since supply cannot

be possible if price of the item is zero. In this case no doubt equilibrium market price will be

milcah answered 2 months ago

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