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Supply Function Analysis for Product ABC

The document presents a market for Product ABC with a given supply function. It: 1) Shows the quantity supplied at two price points to determine the slope and intercept of the supply curve, given by the equation Qs = -3 + 0.5p. 2) Explains that the positive slope of 0.5 reflects the direct relationship between price and quantity supplied. 3) Derives the inverse supply function as the price function, given by P = 1.5 + 0.5Qs. 4) Calculates the price elasticity of supply between prices of 8-10 to be 1.53, indicating an elastic supply for Product ABC over that price range.

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142 views2 pages

Supply Function Analysis for Product ABC

The document presents a market for Product ABC with a given supply function. It: 1) Shows the quantity supplied at two price points to determine the slope and intercept of the supply curve, given by the equation Qs = -3 + 0.5p. 2) Explains that the positive slope of 0.5 reflects the direct relationship between price and quantity supplied. 3) Derives the inverse supply function as the price function, given by P = 1.5 + 0.5Qs. 4) Calculates the price elasticity of supply between prices of 8-10 to be 1.53, indicating an elastic supply for Product ABC over that price range.

Uploaded by

Valeria P
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PIACOS, GIANA VALERIE W.

ASSIGNMENT #4
ECON 1 / 1676

PROBLEM: Consider the market for Product ABC. When the price is at 10 php. Quantity SUPPLIED is 2 units. An 8 pesos increase
in the price would change quantity supplied by 4 units.
PRICE (P) QUANTITY DEMANDED (Qd)
10 PESOS 2 UNITS
ABC
18 PESOS 6 UNITS

1. DETEREMINE THE SUPPLY FUNCTION


a) Determine the formula
Qd  a  bP
Qd 2  Qd1 62
STEP1 : d    0.5; slope
P2  P1 18  10
STEP 2 : 6  c  (18)(0.5); po int& slope
STEP3 : c  6  (0.5)(18)
a  3
Qd  3  0.5 p; SUPPLYFUNCTION

2. SUPPLY FUNCTION INTERPRETATION


-THE 8 PESO INCREASE IN THE PRICE OF THE PRODUCT ABC WOULD INCREASE QUANTITY SUPPLIED BY 4 PESOS
-THE SUPPLY FUNCTION WAS BASED ON THE 8 PESO CHANGE IN PRICE OF THE PRODUCT, THE POSITIVE VALUE OF THE
SLOPE REFLECTED THE DIRECT RELATIONSHIP OF PRICE AND THE QUANTITY SUPPLY OF THE PRODUCT MEANING QUANTITY
BEING SUPPLIED TO THE SELLER DEPENDS ON THE PRICE OF THE PRODUCT.

3. PRICE FUNCTION OF SUPPLY:


P  F (Qs )
c Qs
P 
d d
STEP1 : Qs  3  2 P
(2 P  3  Qs ) /  2
 3 Qs
STEP 2 : P  
2 2
P  1.5  0.5Qs; PRICEFUNCT IONOFSUPPL Y

4. THE PRICE OF THE PRODUCT ABC WHEN NO ONE WOULD WANT TO SELL THE PRODUCT IS ZERO

5.
P Qs
23.50 12.25 units
6.
P Qs
23.50 12.25 units
7. IMPACT OF THE 3 PHP INCREASE IN PRICE
A 3 PESO INCREASE IN THE PRICE OF THE PRODUCT WOULD INCREASE QUANTITY SUPPLIED BY 9 PESOS
3 Qs
8. P    6 A 6 PESO CHANGE IN PRICE FOR A 5 UNIT INCREASE
 0 .5  0 .5
9.

10. PRICE ELASTICITY WHEN PRICE CHANGE FROM 8-10PHP

100% 
(Q2  Q1 ) 
 Q1 
ES 
100% 
( P2  P1 )  
 P1 
9
ES   1.53( ELASTIC )
5.9

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