Suppose that the demand curve for pizzas (in thousands per day) is given by P =...

Suppose that the demand curve for pizzas (in thousands per day) is given by P = 12 – 0.5Q. Calculate the price elasticity of demand if the price is equal to $6. Give and explain one factor that could cause the elasticity of demand for pizzas to increase.

Solutions

Expert Solution

The demand curve is given as

P=12-0.5Q

The price is given as 6. Putting it in the equation above, we get

12-6=0.5Q

Q=6/0.5=12

The formula for point elasticity is dQ/dP*P/Q

Here dQ/dp would be the slope of the demand curve which is also the first-order equation of the demand curve.

So the demand curve in terms of P is Q=24-2P.

Now the differentiation would give dQ/dP= -2

Putting it and the values of P and Q in the equation of elasticity we get

Ed= (-)2*6/12=(-)1

So it is unitary elastic demand curve.

An increase in elasticity implies that the price change would cause a higher change in quantity. This could be due to the availability of substitutes of pizza in the market. If an individual assumes pizza as a product for dinner, then there are more diners nearby which provide substitutes for pizza like hamburgers or pasta etc. This would mean the availability of substitutes for Pizza and this would increase the price elasticity ie if the price now increases, people could shift to other alternatives.

Another factor could be income. If the people of a particular region have low earnings and consider pizza as a luxury good and their necessity good is homemade food , then if pizza company increases the price to a higher one, then it would be elastic, since they would reduce the quantity consumed.

(You can comment for doubts)

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Suppose the demand (in thousands) for a toaster is given by 100p−2, where p is the...

Suppose the demand (in thousands) for a toaster is given by 100p−2, where p is the price in dollars charged for the toaster. a. If the variable cost of producing a toaster is $10, what price maximizes profit? Consider prices from $12 to $30, at $2 increments.

Suppose the demand curve in a city is given by P = 100 - 2Q, where...

Suppose the demand curve in a city is given by P = 100 - 2Q, where P denotes price and Q the local GDP. The supply curve is given by P = 10 + Q. Now Suppose that due to an initial impulse of ΔX = 10 (Increase in exports) and further induced increases in local incomes the new induced demand curve changes to P = 150 - 2Q. Where are the local GDP and the corresponding income multiplier if...

Suppose the supply curve for steel is given by P=Q and the demand for steel is...

Suppose the supply curve for steel is given by P=Q and the demand for steel is given by P=100- 2Q. The production of steel is associated with a constant external cost of $10 per unit. a. Calculate the private equilibrium. What are equilibrium price and quantity? b. What is the deadweight loss associated with the private equilibrium. Calculate and draw a sketch.

Suppose that the (inverse) demand curve for Cranberries is given by P = 40 − 6Q...

Suppose that the (inverse) demand curve for Cranberries is given by P = 40 − 6Q and TC = $4Q + $3Q2 What is equilibrium Price and Quantity and Profit if the market is competitive? What is equilibrium Price and Quantity and Profit if there are two firms in the market (note Q = q1 + q2)? What is equilibrium Price and Quantity and Profit if there are monopoly in the market (note Q = Q)? If there were 3...

Suppose that the market demand curve for bean sprouts is given by P = 880 -...

Suppose that the market demand curve for bean sprouts is given by P = 880 - 4Q, where P is the price and Q is the total industry output. Suppose that the industry has two firms, a Stackelberg leader and a follower. Each firm has a constant marginal cost of $80 per unit of output. In equilibrium, total output by the two firms will be 100. 50. 150. 200. 25.

Suppose that the (inverse) demand curve for Cranberries is given by P = 40 − 6Q...

Suppose that the (inverse) demand curve for Cranberries is given by P = 40 − 6Q and TC = $4Q + $3Q2 What are four conditions required for a competitive market? What is equilibrium Price and Quantity and Profit if the market is competitive? What is equilibrium Price and Quantity and Profit if there are two firms in the market (note Q = q1 + q2)? What is equilibrium Price and Quantity and Profit if there are monopoly in the...

Given a demand curve of P = 56 - 1.25Q and a supply curve of P...

Given a demand curve of P = 56 - 1.25Q and a supply curve of P = 6 + 1.25Q, with a subsidy of 30, solve for the dollar value of the added surplus for both consumers (Answer 1) and producers (Answer 2) arising from the subsidy.

Given a demand curve of P = 61 - 1.25Q and a supply curve of P...

Given a demand curve of P = 61 - 1.25Q and a supply curve of P = 1 + 0.25Q, with a subsidy of 6, solve for the dollar value of the added surplus for producers (PS) arising from the subsidy. You can use the information that the extra consumer surplus (CS) is 210.

Suppose that the demand curve for healthcare is given by P=10-hc. Suppose that each visit is...

Suppose that the demand curve for healthcare is given by P=10-hc. Suppose that each visit is $4. if the coinsurance rate is %50, how many visits do we go on with health insurance?

Suppose the internal supply curve is given by P=6+(2/3)Q, the internal demand curve is given by...

Suppose the internal supply curve is given by P=6+(2/3)Q, the internal demand curve is given by P=12-(1/3)Q, and the social supply curve is given by P=9+(2/3)Q. a. (3 points) Algebraically solve for the coordinates of the market equilibrium and the coordinates of the social optimum. b. (3 points) Labelling everything, graph these three curves and clearly indicate the market equilibrium, the social optimum, and the triangle corresponding to the deadweight loss. (In the interest of time, you do NOT have to draw...

Subjects