Question

5. The equation of a demand function for a tourist attraction in Alaska is given by Q=3000-20P where Q is the number of helicopter flights demanded daily.

a. What is the change in quantity demanded when the price increases by $1.00?

b. What is the quantity demanded when P=0? What does this tell you in words?

c. What is the price when quantity demanded =0? What does this tell you in words?

d. Determine the quantity demanded of helicopter flights when the P= $125.

e. Plot your demand function with a price on the vertical axis indicating the intercepts and your answer to part d.

f. Now assume that supply is given as P=$125 +0.10Qs. Plot this on your graph above indicating the minimum selling price.

g. Determine the market equilibrium price and equilibrium quantity and show this on your graph.

h. If the seller charges a price of $100 will there be a surplus or shortage? Of how much? Show this on your graph.

Answer 1

5. a) Q =3000-20P ,

When P = 0, Q = 3000

When P = 1, Q = 3000 - 20 = 2980

So, when the price increases by $1, the change in quantity demanded = 3000 - 2980 = 20 units.

b) Q =3000-20P ,

When P = 0, Quantity demanded = 3000 units.

This tells me that the maximum quantity that is demanded is 3000 units.

c) Q =3000-20P ,

When Q = 0, Price: 20P = 3000 - Q

P = (3000 - 0)/20 =150

This tells me that the minimum price the seller needs to charge in order to sell is $150.

d) When the P= $125, the quantity demanded: Q =3000-20P

Q = 3000 - 20 (125)

Q = 3000 - 2500

Q = 500 units.

e) Below is the demand function with a price on the vertical axis indicating the intercepts and my answer to part d where the price = $125 and the quantity demanded = 500 units.

f) Below is the supply function with a price on the vertical axis indicating the minimum selling price. The supply function is P=$125 +0.10Qs, so the minimum selling price is when Qs = 0, P = $125 + 0 = $125.