Demand Question

Question

The demand for a commodity generally decreases as the price is raised. Suppose that the demand for oil (per capita per year) is D(p)=800/p barrels, where p is the price per barrel in dollars. Find the demand when p=40. Estimate the decrease in demand if p rises to 41 and the increase in demand if p is decreased to 39.

Answer 1

D(40) = 800/40= 20

D(39) = 800/39 = about 20.51, rounded off to closest integer = 21

D(41) = 800/41 = about 19.51 rounded off to nearest integer = 20

threre's about a 0.51 increase in quantity demanded with a price drop from 40 to 39

there's about a 0.49 decrease in quantity demanded with a price increase from 40 to 41

graphically, the demand equation is a rectangular hyperbola

with vertex = sqr800 = 20(sqr2) = about 28.28

the point (28.28, 28.28)

at any price total revenue always = 800, which is not realistic

but given that demand curve, the profit maximizing price will depend on the supply curve and conditions

the supply curve is upward sloping which will cross the demand curve at the equilibrium point where quanity supplied and quantity demanded are equal, with no shortage or surplus