Question

6. The quantity of a product demanded by consumers is a function of its price. The quantity of one product demanded may also depend on the price of other products. For example, if the only chocolate shop in town (a monoploy) sells milk and dark chocolates, the price it sets for each affects the demand of the other. The quantities demanded, q1 and q2, of two products depend on their prices, pi and p2, as follows: q1150- 2p1 - p2 q2200-P 3p2 (a) What does the fact the the coefficients of pi and p2 are negative tell you? Give an example of two products that might be related this way. (b) If manufacture sell both products, how should the prices be set to generate the maximum possible revenue? What is that max- imum possible revenue?

Answer 1

Answer 6

(a)

In the first equation we can say that Increase in Price of Good 1 (i.e. p₁) will result in decrease in Quantity demand of Good 1(i.e. q₁) which is as according to law of Demand. Also In the first equation -ve sign of p₂ implies that Increase in Price of Good 2 (i.e. p₂) will result in decrease in demand of Good 1(i.e. q₁) which implies than Good 1 and good 2 are complements to each other.

Similarly, In the Second equation we can say that Increase in Price of Good 2 (i.e. p₂) will result in decrease in Quantity demand of Good 2(i.e. q₂) which is as according to law of Demand. Also In the second equation -ve sign of p₁ implies that Increase in Price of Good 1 (i.e. p₁) will result in decrease in demand of Good 2(i.e. q₂) which implies than Good 1 and good 2 are complements to each other.

Hence We have to find 2 goods that are complements to each other.

Hence Example of the Goods are Pen and ink.

We howe to Maxiwuze る《 ap 仁 r, 100.3 x 25 25 art 253 x25 4375