Suppose that one individual’s demand curve is D1(p) = 20−p and another individual’s is D2(p) = 10−2p. What is the market demand function? We have to be a little careful here about what we mean by “linear” demand functions. Since a negative amount of a good usually has no meaning, we really mean that the individual demand functions have the form D1(p) = max{20 − p, 0} D2(p) = max{10 − 2p, 0}. What economists call “linear” demand curves actually aren’t linear functions! The sum of the two demand curves looks like the curve depicted in Figure 15.2 (intermediate economics halvarian 8th edition). Note the kink at p = 5.

1) Consider the example of "Adding up Linear Demand Curves" discussed in Ch 15. Choose new numeric values of the two parameters in the individual demand functions, and solve for the resulting market demand curve. Choose numeric values for parameters "a" and "b" in an inverse linear demand curve of the following form: P=a-bQ. If you were in charge of setting the price for a product your company produces, and you had a good estimate of the demand for your product, you could determine an estimate of the total revenue you would make at each price. If you total costs are zero, what price would you set? What is the equation of the marginal revenue curve?

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Given D1p 20p and D2p 102p be the individual demand functions Market Demand function represent the total demand of the market ie sum of individual dem... View the full answer