What is the inverse demand function?
Inverse demand function is a term used in economics to identify the inverse of a demand function. This can be represented as Price = f-1 (Quantity). Visually, the graph is identical to the demand function, but with switched axes.
The main difference between the demand function and the intermediate microeconomics inverse demand curve is the fact that the demand function represents how many items or pieces of products a consumer is willing to buy under a fixed price condition. However, the marginal cost inverse demand function represents the maximum price a consumer is willing to pay for a certain number of items or pieces of products. Therefore, the demand function aims to give the quantity, whereas the demand curve aims to give the maximum price.
In mathematical terms, the demand function can be represented as Qd = f(P), where Q is quantity, P is price, and d is demand. The monopolist inverse demand function can be represented as Pd = f(Q). Thus, the logical explanation in terms of economy is that an increase in price lowers the demand. However, the inverse demand function shows the maximum price that consumers will pay for a specific amount of goods provided. The latter condition is widely used in monopolistic systems, where a single company or firm can determine the overall supply. The inverse demand curve allows them to determine the relevant price which will yield in the maximum returns. The given concept is highly useful in natural monopolies, such as gas networks or railway infrastructure. By using the inverse demand graph and related concepts states and natural monopolies can negotiate the price of goods within the viable price range. It also prevents the economic turmoil where consumers cannot afford basic goods, which are provided by monopolies.1
"What is the inverse demand function?" Custom-Writing, 2 Apr. 2020, custom-writing.org/qna/the-inverse-demand-function/.
1. Custom-Writing.org. "What is the inverse demand function?" April 2, 2020. https://custom-writing.org/qna/the-inverse-demand-function/.
Custom-Writing.org. "What is the inverse demand function?" April 2, 2020. https://custom-writing.org/qna/the-inverse-demand-function/.
Custom-Writing.org. 2020. "What is the inverse demand function?" April 2, 2020. https://custom-writing.org/qna/the-inverse-demand-function/.
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