Analyzing the effect of price changes on purchasing
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Consider two investors (A and B) with the following demand curve for a stock:
A: p=100-q
B: p=150-2q
a) At a price of $50, how much will A and B purchase?
b) If the price falls to $30, who will increase their holdings more?
c) On this basis, which investor seems to be more overconfident?
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The solution analyzes the effect of price changes on purchasing.
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a) At a price of $50, how much will A and B purchase?
A: p=100-q
For p=$50,
50=100-q
q=50
B: p=150-2q
For p=$50,
50=150-2q
q=50
Both will buy 50 units.
b) If the price falls to $30, who will increase their holdings more?
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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