Thread: Can someone run me through how to do this, my book is not helping at all

that being said i have gave it a go but would be helpful if someone could run through this practise question with me

1. A company manufactures widgets and knows that when they set the price of
one widget to £25 then their customers demand 30 widgets. However, if they
reduce the price of a widget to £20, demand then increases to 35 widgets. In
order to produce widgets the company faces fixed costs of £300 and variable
costs of £15 per unit.
a) Use the data regarding price and demand to determine the linear
demand function (recall the demand function will be of the form
p = aQ + b where p is price and Q is quantity) (9)

Substituting two given pairs (price, quantity) into the equation p = aQ + b, you get two equations on a and b. Then you need to solve the system of these two equations.

thankyou but i still do not understand 100%, i am very new to all of this

Originally Posted by yoshimuru

thankyou but i still do not understand 100%, i am very new to all of this

Substituting two given pairs (price, quantity) into the equation p = aQ + b, you get two equations on a and b. Then you need to solve the system of these two equations.

25 = 30a + b

20 = 35a + b

solve the system of equations for a and b ...

a=-1
b=55

thats what i got, sound right to you guys?, think im getting this tho not sure

Originally Posted by yoshimuru

a=-1
b=55
thats what i got, sound right to you guys?, think im getting this tho not sure

Substitute your values in one of the original equations:
30a + b = 25
30(-1) + 55 = -30 + 55 = 25
So you're correct...OK?