Question

a) Suppose the demand for a product is given by p=d(q)=-3q²+6q+436  where  q is the quantity and p is the price in Ghana Cedis. Using calculus, estimate the effect of an increase in price from GH¢196.00 to GH¢250.00 on the welfare of the consumer.Using the concept of own elasticity of demand, decide whether the producer should accept this price increase in order to increase revenue.

Answer 1

$$-3q^2+6q+436=196$$

$$q=10$$

$$pq=1960$$

$$-3q^2+6q+436=250$$

$$q=9$$

$$pq=2250$$

$$\varDelta pq=1960-2250=-290$$

Consumer welfare decreased by 290 Ghanaian cedis. The manufacturer accepts a price increase to increase revenue.