Q1=40-0.5P1 is the demand function of good 1.Assume (i) That the linear demand function for another...

Q1=40-0.5P1 is the demand function of good 1.Assume
(i) That the linear demand function for another commodity good 2 intersects this function at the point P1=8
(ii) Show that the price elasticity of demand for good 1,ED1 is half that of good 2 at the point of intersection and express the demand function for good 2 in algebraic form

Solutions

Expert Solution

Given, the demand function is . At , the demand is or . The elasticity will be or or . The elasticity of good 1 at the point will be or .

Suppose the second demand curve is . The elasticity would be or or . According to the statement, , and hence, we have (as the elasticity will be at that certain point) or . Hence, the demand function of good 2 will be . To find a, we put the point coordinates of price and quantity as or or . The demand function of good 2 will hence be .

Rahul Sunny answered 2 years ago

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