Question

1. Suppose there are two type of customers for a comic book store, teenage buyers (type 1) and college-aged buyers (type 2). The owner has conducted interviews and concluded that there are 60 teenage customers, each with an inverse demand curve P = 15 - 5Q. The owner found there are 45 college-aged customers, each with inverse demand curve P = 15 - 3Q. Here, P is the price and Q is the quantity demanded. (a) What is the bookstore's demand function in total, across all customer types? (b) Draw a graph of the bookstore's demand across all customer types. (c) If the seller sets the price to $10, what is the total quantity demanded? (d) What is the elasticity of demand at the above bundle? (e) If the owner slightly increases the price, would the total expenditure of customers increase or decrease? Explain. (f) Does your analysis for part (e) change if the seller sets the price to $5? (g) Show the total consumer surplus at P = $5 on the graph, and calculate it.

Answer 1

bw teenage customers with : par 15-502 >> u5 college aged ustomers with a P= 15-30 = = 15-P d = 15-p a Demand Acrom all unloggers del a be the Aggregate demand. - l = 60 Qt + usac Q = 60(15=2) +45 (158) Q = 12115-P) + 15(15-p) a= 180- 12 Pt 225_15P [a= 405-27P] Aggregate demand b) Grußhing the Aggregate Demand function a= 405-27P Intercept: al nos lo pto 115 Price AA - 15k ABT Aggregate demond cune o os > Quantity c) Cuantity at pallo

d) . A= 435-27P = 465-27 (10) = 405-270 Tcf = 135] do Qunndity dosnanded is 135 Elasticity of demand lampade od 405-35p) y por Lopes ,0? = - ] So, the demand one is elastic.