Question

The demand equation for a manufacturer's product is:
p = 50 x $(151 - q)^{0.02\sqrt{q+19} }$
(a) Find the value of dp/dq when 150 units are demanded.
(b) Using the result in part (a), determine the point elasticity of demand when 150 units are demanded. At this level, is demand elastic, inlastic, or of unit elasticity?
(c) Use the result in part (b) to approximate the price per unit it demand decreases from 150 to 140 units.
(d) If the current demand is 150 units, should the manufacturer increase or decrease price in order to increase revenue?

Answer 1

From the given price function, we have;

(a) $\frac{dp}{dq} = - 13$

(b) The point elasticity of demand is 0.0256; inelastic demand

(c) $46.6

(d) Increase

How can the elasticity of demand be found?

a. The given function is presented as follows;

$p = 50 \times (151 - q) ^{0.02 \times \sqrt{q + 19} }$

Differentiating the above function with a graphing calculator and setting q = 150 gives;

$\frac{dp}{dq} = - 13$

b. The point elasticity of demand is given by the formula;

$e \: = \frac{dq}{dp} \times \frac{p}{q}$

When q = 150, we have;

P = 50

Which gives;

$e \: = \frac{1}{13} \times \frac{50}{150} = 0.0256$

The point elasticity of demand, E = 0.0256

• The demand is inelastic (less than 1) when the quantity demanded is 150 units

c. If the quantity demanded decreases from 150 to 140 units, we have;

$0.0256 \: = \frac{1}{13} \times \frac{p}{140} =$

Which gives;

p = 46.6

• The price when the quantity demanded decreases to 140 is $46.6

d. Given that increase in price, from 46.6 to 50, increases the quantity demanded from 140 to 150, therefore;

• The manufacturer should increase the price, p to increase the revenue, R.

R = p × q

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