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- Assignment No.2 (Course STA301) Spring 2010 May 4
To find equilibrium price
After solving the equation we have the value of P, which is equilibrium price.
Then put he value of p in any one of the equation of quantity then we have the equilibrium quantity Q.
For calculating elasticity of demand we have the formula…
Elasticity of demand = Ed = dQ/dP / Q/P
Derivative should b taken of demand function (Qd= 850-25P) with the respect to P
Ed is negative.
For calculating elasticity of supply we have the formula…
Elasticity of demand = Es = dQ/dP / Q/P
Derivative should b taken of supply function (Qs= 500+45p) with the respect to P
Es is positive.
WE KNOW QD=QS
AS WE KNOW QS=QD FOR EQULIBRIUM
SO it will be at 1287.5
p=5 ( equilibrium price)
Putting the value of P in eq 1, we will get the equilibrium quantity,
Q=725 per bushel
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