Tue 18 Oct, 2016 08:04 pm
So I'm pretty sure I figured out number one and I believe the answer to number two is Normal. I am using derivatives to figure this call; dQ/dM * m/Q
Suppose the market demand function for a given product is 𝑞 = 12 − 𝑝 + √𝑚, where 𝑝
is the product’s price and 𝑚 is aggregate income.
a. Calculate price elasticity (𝜖) at 𝑝 = 2 and 𝑚 = 100. Is demand elastic, inelastic,
or unit elastic at these values? (2 pt)
b. Calculate income elasticity (𝜖𝑚) at 𝑝 = 2 and 𝑚 = 100. Is this a normal good or
an inferior good? (2 pt)
c. Now suppose a single producer is operating in this market. Fixing income at
𝑚 = 100, use the inverse demand curve to derive the total revenue and marginal
revenue functions of this producer, 𝑅(𝑞) and 𝑀𝑅(𝑞).