ECON 1000 Lecture Notes - Anushree (Kannada Actress)

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31 Jan 2013
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Anushree Joshi DAY 7 LECTURE September 27th
Professor: Kieran Furlong Microeconomics (ECON 1000)
Linear Demand Functions
- Demand = quantity response to price (example: for $_, how many beers would you buy?)
o Creating survey questions should be clear, you should be getting answers
- Example: Suppose a pub night results in 500 beer sold at $2.50 and another pub night results in
750 beer at $2.00. What is the linear demand function? *ON EXAM
o Linear demand = P = P-intercept + (change in P)/(change in Q) * Q
o Find the slope
P = price = x = 2.50 2.00 = 0.5
Q = quantity = y = 500 750 = -250
0.5 / -250 = -0.002
o So far: P = a 0.002Q
o Plug in a point (P,Q) and solve for a
Use (2.50, 500)
2.50 = a 0.002(500)
a = 3.5
o So far: P = 3.5 0.002Q
o Plug in the other point (P2, Q2) and solve for a again
Use (2, 750)
2 = a 0.002(750)
a = 3.5
o So, P = 3.5 0.002Q is correct
o Examining total revenues, costs and profits
Total revenue at $2.50 is 2.5(500) = $1250
Total revenue at $2 is 2(750) = $1500
Fixed costs i.e. rent the bar, hire the bartender, etc.
Variable costs i.e. cost per beer for security, for bar rental, etc.
Trying to maximize revenue
Example: What is total revenue at P = $1?
Plug it into the demand function equation
1 = 3.5 0.002Q
Q = 1250
Total revenue = 1(1250) = $1250
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