Question

Consider a fictitious company, Teslala, that produces a single type of electronic vehicle, Model Z. The demand for Model Z depends on the gasoline price (q) because customers tend to purchase an electronic vehicle as a substitute for vehicles that run on gasoline when the gasoline price increases. The demand for Model Z is estimated as D(p) = 180 + 10q - 4p, where p is the price of Model Z. Consider the following two statements: 1. If the average gasoline price q increases by $1, the revenue-maximizing price p" increases by $X 2. If the average gasoline price q increases by $1, the demand at the revenue- maximizing price (i.e., D(p*)) increases by a factor of Y What is X/Y?

Answer 1

The ratio X/Y for the fictitious company, Teslala, that produces a single type of electronic vehicle, Model Z is 10/pY.

What is a mathematical model?

A mathematical model is the model which is used to explain the any system, the effect of the components by study and estimate the functions of systems.

Consider a fictitious company, Teslala, that produces a single type of electronic vehicle, Model Z.

The demand for Model Z depends on the gasoline price (q) because customers tend to purchase an electronic vehicle as a substitute for vehicles that run on gasoline when the gasoline price increases.

The demand for Model Z is estimated as

$D(p) = 180 + 10q - 4p$

Here, p is the price of Model Z.

Consider the following two statements:

• 1. When the average gasoline price q increases by $1, the revenue-maximizing price p" increases by $X.

$D(p) = 180 + 10q - 4p\\D(p) = 180 + 10(q+1) - 4(p+X)$

• 2. When the average gasoline price q increases by $1, the demand at the revenue-maximizing price (i.e., D(p*)) increases by a factor of Y.

$D(p)+Y = 180 + 10q - 4p\\(D(p)+Y) = 180 + 10(q+1) - 4(p+X)\\Y= 180 + 10(q+1) - 4(p+X)-D(p)$

Put the value of demand at the revenue-maximizing price as,

$Y= 180 + 10(q+1) - 4(p+X)-(180 + 10q - 4p)\\Y= 180 + 10q+10 - 4p-pX-180 - 10q + 4p\\Y= 10 -pX\\1=\dfrac{10}{Y}-\dfrac{pX}{Y}\\\dfrac{10}{Y}=\dfrac{pX}{Y}\\\dfrac{10}{pY}=\dfrac{X}{Y}$

Thus, the ratio X/Y for the fictitious company, Teslala, that produces a single type of electronic vehicle, Model Z is 10/pY.

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