to Questi 1A Given 1 Numerical Applications of Demand on dem

to Questi 1A. Given 1: Numerical Applications of Demand on demand cune following information on WIU coffee mugs plot the relevant points deman(make sure you indicate what factors are being held constant along the curve when labeling your graph) Income- $25,000 Price of regular (non-WIU) mug $8 Price of WIU travel mug $20 Quantity Demanded WIU coffee mug 500 1000 1500 Price of Wio coffee mug $25 $20 $15 C $10D QD GGD 10 DQD 1000 I500 Determine the inverse demand equation and the demand equation for WIU coffee m ngthe data provided above. Show yourwork. p=maDtb 2 Op 600 04D -600P 4- 04 @p11600-760

Solution

(a) The demand function is graphed correctly.

(b) Inverse equation of a linear demand curve is:

Q = a - bP

When P = $25, Q = 0. Therefore,

0 = a - 25b

a = 25b

When P = $10, Q = 1500. Therefore,

1500 = a - 10b

1500 = 25b - 10b

1500 = 15b

b = 100

a = 25b = 25 x 100 = 2500

Inverse demand curve: Q = 2500 - 100P

(c) From inverse demand equation,

100P = 2500 - Q

P = 25 - 0.01Q [Demand curve equation]