3-1. It is known that quantity demanded decreases by two units for each Re.1 increase in price.

At a
price of Rs. 5, quantity demanded is ten units.
a. What will be the quantity demanded if price is zero?
b. Write an equation for quantity demanded as a function of price.
c. Write an equation that expresses price as a function of quantity
d. Write an equation for total revenue.
3-2. A market consists of three people, A, B, and C whose individual demand equations arc as
follows:
A: P = 35 .5QA 0

B: P = 50 0.25Q8

C: P = 40 2.00Qc
The industry supply equation is given by Qs = 40 + 3.5?
a. Determine the equilibrium price and quantity.
b. Determine the amount that will be purchased by each individual.
3-3. A market consists of two individuals. Their demand equations are Q1 = 16 4P and Q2 = 20
2P, respectively.
a. What is the market demand equation?
b. At a price of Rs. 2, what is the point price elasticity for each person and for the market?
3-4. The demand equation faced by Sandeep Electronics for its washing machines is given by P =
10,000 4Q.
a. Write the marginal revenue equation.
b. At what price and quantity will marginal revenue be zero?
c. At what price and quantity will total ievenue be maximized?
d. If price is increased from Rs. 6,000 to Rs. 7,000, what will the effect be on total revenue?

3-4. The demand equation faced by Sandeep Electronics for its washing machines is given by P =
10,000 4Q.
a. Write the marginal revenue equation.
b. At what price and quantity will marginal revenue be zero?
c. At what price and quantity will total ievenue be maximized?
d. If price is increased from Rs.6,000 to Rs. 7,000, what will the effect be on total revenue? What
does this imply about price elasticity?
3-5. The demand for handkerchiefs produced by a Daman manufacturer has been estimated to be P
= 30 (2/200.
a. Compute the point elasticity at P = Rs. 10; at P = Rs. 15.
b. How does the point elasticity vary with the price?
3-6. A manager believes that the demand for his product is given by the equation P = 50 Q/100.
a. What is the arc elasticity of demand as price decreases from Rs 12 to Rs. 10?
b. What is the arc elasticity of demand as price increases from Rs. 10 to Rs. 12? 3-7. For
each of the following equations, determine whether demand is elastic, inelastic, or unitary elastic at the
given price.
a. Q= 100 4P and P = Its. 20.
b. Q = 1500 20P and P = Rs 5.
c. P = 50 0.1Q and P Rs. 20.
3-8. Goa Flash Company manufactures and sells sailboards. Management believes that the

price elasticity of demand is 23.0. Currently, boards are priced at Rs. 500 and the quantity demanded
is 10.000 per year.
a. If the price is increased to Rs. 600. how many sailboards will the company be able to sell
each year?
b. How much will total revenue change as a result of the price increase?
3-9. Demand for a Current Affairs book is given by Q = 20,000-300P. The book is initially priced at
Its. 30.
 a. Compute the point price elasticity of demand at P = Rs. 30.
b. If the objective is to increase total revenue, should the price be increased or decreased? Explain.
c. Compute the arc price elasticity for a price decrease from Rs. 30 to Rs. 20.
d. Compute the arc price elasticity for a price decrease from Its. 20 to Rs. 15. 3-10. Write
a demand equation for which the price elasticity of demand is zero for all prices. 3-11. A consultant
estimates the pricequantity relationship for Shillong Pizzas to be P = 50-
5Q.
a. At what output rate is demand unitary elastic?
b. Over what range of output is demand elastic?
c. At the current price, eight units are demanded each period. If the objective is to in-
crease total revenue, should the price be increased or decreased? Explain.
3-12. The price elasticity for rice is estimated to be -0.4 and the income elasticity is 0.8. At a price of
Rs. 20 per kgs. and a per capita income of Rs. 20,000, the demand for rice is 5 crore tons per year.
a. Is rice an inferior good. a necessity. or a luxury? Explain.
b. If per capita income increases to its. 20,500, what will be the quantity demanded of rice?
c. If the price of rice increases to Rs. 22 per kgs and income per capita remains at Rs. 20,000,
what will be the quantity demanded?
3-12. The price elasticity for rice is estimated to be 0.4 and the income elasticity is 0.8. At a price of
Rs. 20 per kgs. and a per capita income of Rs. 20,000, the demand for rice is 5 crore tons per year.
a. Is rice an inferior good, a necessity. or a luxury? Explain.
b. If per capita income increases to Its 20,500, what will be the quantity demanded of rice?
c. If the price of rice increases to Rs. 22 per kgs. and income per capita remains at Rs. 20,000,
what will be the quantity demanded?
3-13. Acme Tobacco is currently selling 5,000 kgs. of pipe tobacco per year. Due to competitive pressures,
the average price of a pipe declines from Rs. 15 to Rs. 12. As a result, the demand for Acme
pipe tobacco increases to 6.000 kgs. per year.
a. What is the cross elasticity of demand for pipes and pipe tobacco?
b. Assuming that the cross elasticity does not change, at what price of pipes would the de-
mand for pipe tobacco be 3.000 kgs. per year? Use Rs. 15 as the initial price of a pipe.
3-14. The Jharkhand Steels Ltd. is a major producer of steel. Management estimates that the demand
for the company's steel is given by the equation
Qs = 5,000 1,000P, + 0.11 + 100Pa
where Qs is steel demand in thousands of tons per year, P, is the price of steel in Rs. per kgs., I is
income per capita. and P is the price of aluminum in Rs. per kgs. Initially, the price of steel is Rs.
40 per kgs., income per capita is Rs. 20,000, and the price of aluminum is Rs. 30 per kgs.
a. How much steel will be demanded at the initial prices and income?
b. What is the point income elasticity at the initial values?
c. What is the point cross elasticity between steel and aluminum? Are steel and aluminum
substitutes or complements?
d. If the objective is to maintain the quantity of steel demanded as computed in part (a). what
reduction in steel prices will be necessary to compensate for a Rs. 5 reduction in the price of
aluminum?