Question

In: Economics

(a) The daily demand for hotel rooms in Greater Toronto Area (GTA) is given by the...

(a) The daily demand for hotel rooms in Greater Toronto Area (GTA) is given by the equation: QD = 230–35P. The daily supply of hotel rooms GTA is given by the equation: QS = 13+19P. What are the equilibrium price and the quantity of hotel rooms? 6 marks

(b) Suppose the demand for a bushel of Corn in 2000 was given by the equation QD = 2550–166P. At a price of $4.46 per bushel, what is the price elasticity of demand? If the price of Corn falls to $4.27 per bushel, what happens to the revenue generated from the sale of Corn?

Expert Solution

(a)

The daily demand of hotel rooms GTA is given by the equation QD = 230–35P.

The daily supply of hotel rooms GTA is given by the equation: QS = 13+19P.

The equilibrium occurs at a point where Qd=Qs

230-35P=13+19P

54P=217,

P*=217/54 =4.02

Q*=13+19*4.02=89.36

(b)

QD = 2550–166P. At a price of $4.46 per bushel, Qd = 2550-166*4.46 = 1809.64

Ed = (dq/dp)*(p/q)

=-166*4.46/1809.64

=-0.41 (the demand in inelastic)

The demand being inelastic a fall in price to 4.27 will lead to fall in revenue

P	Q	*TR=PQ**
4.46	1809.64	8071.0
4.27	1841.18	7861.8

Rahul Sunny answered 2 years ago

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