Question

Managerial economist estimates the price-quantity relationship for Textile Company to be p= 40-4q a. At what output rate demand is unitary elastic? b. Over what range of output demand is elastic? c. Over what ranges of the output of demand are inelastic?

Answer 1

So unit elastic at q = 5

inelastic above 5

and elastic below 5

Step-by-step explanation:

The elasticity is determianted by the marginal revenue.

Our first goal is to find the marginal revenue function

p = 40 - 4q

total revenue(TR) = quantity times price

q x (40 - 4q) = -4q^2 +40q

marginal revenue TR(q)/d(q) = -8q + 40

Now, with this fuction the economic analisys states that a demand is unit elastic when marginal revenue is zero.

It will be inelastic below zero and elastic above zero

MR will be zero when q = 5

-8(5) + 40 = 0

As quantity increases the demand will be inelastic

while