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Peanut butter price went from $1 per pound to $2, while its quantity demanded dropped from...

Peanut butter price went from $1 per pound to $2, while its quantity demanded dropped from 330 to 300 million pounds. Based on this information, please answer the following questions.

1) What is the demand function for peanut butter? To answer this question, please solve for parameters a and b in P=a-bQD

2) Denote the elasticity of peanut butter demand with respect to price as EDP. What is the value of EDP at QD=330 million pounds? What about at QD=300 million pounds? And at the mid-point of QD=315 million pounds? Please use two methods to compute this last elasticity value.

Solutions

Expert Solution

Price	Quantity demanded
1	330
2	300

P=a-bQD

When price is 1, quantity demanded is 330

b= slope of demand curve

1=a-b*330

slope=

When p=1

inverse demand fucntion is

a=12

2) elasticity when Q is 330

EP=

=.0909

Ep when qd=300

Ep=

ep=.2

Ep using mid point method

EP=

=.1428

Rahul Sunny answered 2 years ago

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