Thread: Elasticity of demand

A subway charges 65 cent per person and has 10 000 riders each day. The demand function for the subway is q = 2000(90-q)^1/2

If the subway company lowers the price to below 65 cents, will it increase the amount of money it takes in from riders?


help please T_T

Originally Posted by CandyKanro

A subway charges 65 cent per person and has 10 000 riders each day. The demand function for the subway is q = 2000(90-q)^1/2

If the subway company lowers the price to below 65 cents, will it increase the amount of money it takes in from riders?


help please T_T

The demand function is:

q = 2000(90-p)^1/2

where p is the price in cents and q the number of riders per day.

The question is asking if you lower p does q go up or down.

Raising p by a small amount makes 90-p smaller so (90-p)^(1/2) is smaller and so q is smaller. Similarly reducing p make 90-p larger and hence q larger.

CB