Problem
Suppose the estimated supply function for avocados is given by QS = 58 + 15p - 20pf , where pf is the price of fertilizer. The estimated demand for avocados is given by Qd = 144 - 40p + 20pt , where pt is the price of tomatoes per pound.
A. Solve for the initial equilibrium price and quantity of avocados if the price of fertilizer, pf, is equal to $0.40 per lb. and price of tomatoes, pt, is equal to $0.80 per lb.
B. Solve for the new equilibrium price and quantity of avocados if the price of fertilizer, pf, increases to $1.10 per lb. and price of tomatoes, pt, remains $0.80 per lb.
C. Use these equilibrium values from parts A and B to solve for the price elasticity of demand for avocados.
D. Given your calculations, are avocados elastic, inelastic or unit-elastic? Has the total revenue of avocado producers increased, decreased, or not changed as a result of the change in price and quantity?