Problem: The daily market demand for Fresno State Rocky Road ice cream is given by: P = 10 - 0.5Qd, where Qd is the quantity, in gallons, and P is price, $/gation. The supply of Fresno State Rocky Road ice cream is given by: P = 2 + 0.25Qs , where Qs is the quantity supplied per day

Note the values for equilibrium price and quantity from the previous problem set.

1. Do Buyers and Sellers know specifically the equilibrium price? If the market price is equal to $4.00, will sellers eventually have the incentive to increase price, lower price, or maintain price? Explain why.
2. Do Buyers and Sellers know specifically the equilibrium price? If the market price is equal to $5.00, will sellers eventually have the incentive to increase price, lower price, or maintain price? Explain why.
3. Make a table of values for P, Qd, and TR. Initially, Qd values should include integers 0 to 20 as well as 10 2/3. TR = P x Qd
4. Graph the demand curve only (Price versus Quantity Demanded - P or $/Q vs Qd ). On a separate graph with the same horizontal scale and aligned directly beneath the demand curve graph, graph the TR curve (Total Revenue versus Quantity Demanded -- TR or $ vs Qd) derived from this demand curve. Use the same horizontal scale, Qd, on both graphs.
5. Compute the point price elasticity of demand when price is equal to $3; equal to $4; equal to $5; equal to $6; equal to the equilibrium price $4.67. (Use both formulas presented in lecture.)
6. What are the values (specify the range) for Qd where demand is elastic? What are the values (specify the range) for Qd where demand is inelastic? What is the one value for Qd where demand is unitary elastic? Indicate these elastic and inelastic ranges for Qd on both the demand curve graph and the TR curve graph.

C. Graph the supply curve only. Compute the point supply elasticity (elasticity of supply) when price is equal to $3; equal to $4; equal to $5; equal to $6; equal to the equilibrium price $4.67. (Use the one formula presented in class.)

H. At the equilibrium price $4.67, which is more inelastic, supply or demand?

Price: $12.96

Solution: The downloadable solution consists of 6 pages, 696 words and 3 charts.
Deliverable: Word Document