Use the Örst-order condition to calculate the price P that maximizes revenue R(P) = QD(P)P:
economics
Description
Please hand in your solutions in our class on Wednesday January 29.
1. Suppose demand is given by QD(P) = 100 5P.
(a) Calculate Q0 D(P).
(b) Calculate the price elasticity of demand "D(P).
(c) Use the Örst-order condition to calculate the price P that maximizes revenue R(P) = QD(P)P:
(d) Use the second-order condition to verify that the solution in (c) is a local maximum.
(e) Plug in the value P that you calculated in (c) in the elasticity expression that you calculated in (b), and verify that "D(P ) =
