Recall that a linear demand curve has the form Q = A - BP, where P is price and A and B are positive numbers. Suppose that when price is $5 the amount demanded is 100 and the elasticity of demand is -2. What are the values of A and B?
What will be an ideal response?
E = -B × (P/Q), so -2 = -B × (5/100) which implies that B = 40. Now, using Q = A - BP, we have 100 = A - 40(5), which implies that A = 300.
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