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Macroeconomics

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1.
Demand curve: P = 1,000 â?" 25Q, where P is price and Q is quantity sold per month.
dQ/dP = -1/100
n= (dQ/DP) * (P/Q)

1) Calculate the price elasticity of demand if price equals $250. 2)Calculate the price that maximizes total revenue.

2
Assume that you have $150 that you can spend on either concert tickets or theatre tickets. Each concert ticket costs $30 and each theatre ticket costs $3. The marginal rate of substitution of concert tickets for theatre tickets equals 2.5, no matter what the bundle is that you choose. How many concert tickets are you going to purchase?

3.
True or False. The more inelastic the demand curve, the greater a shortage will be. Explain your answer.

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Solution Summary

This solution helps go through macroeconomic concepts such as elasticity and marginal rate of substitution.

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1. When P = 250, 250 = 1,000 â?" 25Q, Q = 30

Q = 40 - P/25, note here that dQ/dP = -1/25

n= (dQ/DP) * (P/Q) = (-1/25)*(250/30) = -0.33

Revenue = price X quantity = P(40 - P/25) = 40P - ...

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