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Indifference and demand curves

Please refer attached file for complete question. Graph is missing here.

1. In the following diagram, we show one of Jane's indifference curves and her budget line.

a. If the price of good X is $100, what is her income?
b. What is the equation for her budget line?
c. What is the slope of the budget line?
d. What is the price of good Y?
e. What is her marginal rate of substitution in equilibrium?

2. The Johnson Robot Company's marketing officials report to the company's CEO that the demand curve for the company's robots in 2004 is

P= 3,000 - 40Q

Where p is the price of a robot and Q is the number sold per month.

a. Derive the marginal revenue curve for the firm
b. At what prices is the demand for the firm's product price elastic?
c. If the firm wants to maximize its dollar sales volume, what price should it charge?


Solution Preview

Please refer attached file for graph.

1 a.If the price of good X is $100, what is her income?
We find that budget line intersects axis for Good X at 40. It means that maximum amount of Good X (when Good Y=0) that can be bought with income is 40.

b.What is the equation for her budget line?
We are given two points (80,0) and (0,40) on budget line, so equation of line will ...

Solution Summary

There are two questions. Solution to first problem describes the methodology to find out equation/slope of budget line, price and Marginal rate of substitution. Solution to second problem derives marginal revenue function and revenue maximizing price level. It also deremines the price range where demand is price elastic.