Suppose that the demand curve for a new product can be expressed as Q^D = 900 - 3P. At what quantity is total expenditure maximized? A) 900 B) 450 C) 300 D) 150

Question

Quizplus · Accepted Answer

Total expenditure (TE) is maximized where the price elasticity of demand is unitary (elasticity = 1). The demand curve is given by Q = 900 - 3P. To find the quantity where TE is maximized, we first need to find the price that makes the elasticity equal to 1. The midpoint formula for elasticity is (P/Q) * (dQ/dP), where dQ/dP is the derivative of the demand function with respect to P, which is -3 in this case. Setting the elasticity to 1 and solving for Q gives us Q = 450.

Suppose That the Demand Curve for a New Product Can