Assignment
1. Consider the following three demand curves (where P is price in dollars and Q is quantity in units):
1. (A) Q = 100 - 0.5P
2. (B) Q = 200 - 0.5P
3. (C) Q = 200 - P
At a price of $40, calculate the own price elasticity of demand for each of the three demand curves.
2. The owner of a baseball team and local stadium has commissioned a study that showed the demand by fans for stadium seats (per playing date) to be P = 22 - 0.2Q, where P is the average price of a ticket and Q represents the number of seats (expressed in thousands). The local stadium seats a maximum of 56,000 per game. The price has been set at $10 per ticket. Suppose the owner offers you 20% of any increase in revenues that you can generate. If you can only choose a uniform per- ticket price, what is the maximum amount you can earn per game? (Note: Assume that all seats and all games are the same in this problem.)
3. Suppose you are a consultant for a firm that is perfectly competitive. The firm is worried only about its policies in the short run. What would you recommend in terms of quantity changes (raise, cut, shut down or stay put) and price changes (raise, cut, stay put) in each of the following situations:
a. P = $11 MC = $12 AVC = $7.
b. P = $9 MC = $4 AVC = $11.