1. Price Elasticity of Demand
(a) Suppose you have estimated the following demand function: Qd = 44 – 4*P. Based on the information about this relationship, fill in the following table (using the formula for point elasticity of demand):
Comment on the changes you are observing as the price increases!
(b) Calculate the arc elasticity of demand (using the midpoint formula) if price increases from 6 to 8! Is the result the same as the point elasticity when the price is 7? Why or why not?
2. Costs of Production.
Using the following relationship between the quantities of input X and output for a certain firm, fill in the following table. Assume that the price for one unit of input X is 30 lats and the fixed selling price of output is 5 lats. Fixed costs are equal to 50 lats.
How many units of input X would you use to maximize profits?
Based on the information above, fill in the following table Identify the quantity of Input X at which total profits are maximized.