FIGURE 6.2 The total-revenue test for price elasticity. (a) Price declines from $2 to $1, and total revenue increases from $20 to $40. So demand is elastic. The gain in revenue (blue area) exceeds the loss of revenue (yellow area). (b) Price declines from $4 to $1, and total revenue falls from $40 to $20. So, demand is inelastic. The gain in revenue (blue area) is less than the loss of revenue (yellow area). (c) Price declines from $3 to $1, and total revenue does not change. Demand is unit-elastic. The gain in revenue (blue area) equals the loss of revenue (yellow area). (a) Elastic (b) Inelastic (c) Unit-elastic in Figure 6.2a. We have already established that at point a, total revenue is $20 (= $2 x 10), shown as the yellow plus green area. If the price declines from $2 to $1 (point b), the quantity demanded becomes 40 units and total revenue is $40 (= $1 x 40). As a result of the price decline, total revenue has increased from $20 to $40. Total revenue has increased in this case because the $1 decline in price applies to 10 units, with a consequent revenue loss of $10 (the yellow area). But 30 more units are sold at $1 each, resulting in a revenue gain of $30 (the blue area). Visually, the gain of the blue area clearly exceeds the loss of the yellow area. As indicated, the overall result is a net increase in total revenue of $20 (= $30 - $10). the higher-priced units will be more than offset by the revenue lost from the lower quantity sold. Bottom line: Other things equal, when price and total revenue move in opposite directions, demand is elastic. Ed is greater than 1, meaning the percentage change in quantity demanded is greater than the percentage change in price. Inelastic Demand If demand is inelastic, a price decrease will reduce total revenue. The increase in sales will not fully offset the decline in revenue per unit, and total revenue will decline. To see this, look at demand curve D2 in Figure 6.2b. At point c
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It is calculated as: Elasticity = (Change in Quantity / Average Quantity) / (Change in Price / Average Price) Now, let's calculate the elasticity for each demand curve: Show more…
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HARMATHAP12 11.5.002. In this problem, p is in dollars and q is the number of units. (a) Find the elasticity of the demand function 2p + 3q = 150 at the price p = 15. (b) How will a price increase affect total revenue? Since the demand is unitary, there will be no change in the revenue with a price increase. Since the demand is elastic, an increase in price will increase the total revenue. Since the demand is inelastic, an increase in price will decrease the total revenue. Since the demand is elastic, an increase in price will decrease the total revenue. Since the demand is inelastic, an increase in price will increase the total revenue. HARMATHAP12 11.5.003. In this problem, p is in dollars and q is the number of units. (a) Find the elasticity of the demand function p^2 + 2p + q = 64 at p = 7. (b) How will a price increase affect total revenue? Since the demand is elastic, an increase in price will increase the total revenue. Since the demand is unitary, there will be no change in the revenue with a price increase. Since the demand is inelastic, an increase in price will increase the total revenue. Since the demand is inelastic, an increase in price will decrease the total revenue. Since the demand is elastic, an increase in price will decrease the total revenue. HARMATHAP12 13.2.057. A store finds that its sales revenue changes at a rate given by S'(t) = -30t^2 + 360t dollars per day where t is the number of days after an advertising campaign ends and 0 ≤ t ≤ 30. (a) Find the total sales for the first week after the campaign ends (t = 0 to t = 7). (b) Find the total sales for the second week after the campaign ends (t = 7 to t = 14).
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Assume the following cost data are for a purely competitive producer: $$\begin{array}{ccccc} \hline \begin{array}{c} \text { Total } \\ \text { Product } \end{array} & \begin{array}{c} \text { Average } \\ \text { Fixed cost } \end{array} & \begin{array}{c} \text { Average } \\ \text { Variable cost } \end{array} & \begin{array}{c} \text { Average } \\ \text { Total cost } \end{array} & \begin{array}{c} \text { Marginal } \\ \text { cost } \end{array} \\ \hline 0 \\ 1 & \$ 60.00 & \$ 45.00 & \$ 105.00 & \$ 45 \\ 2 & 30.00 & 42.50 & 72.50 & 40 \\ 3 & 20.00 & 40.00 & 60.00 & 35 \\ 4 & 15.00 & 37.50 & 52.50 & 30 \\ 5 & 12.00 & 37.00 & 49.00 & 35 \\ 6 & 10.00 & 37.50 & 47.50 & 40 \\ 7 & 8.57 & 38.57 & 47.14 & 45 \\ 8 & 7.50 & 40.63 & 48.13 & 55 \\ 9 & 6.67 & 43.33 & 50.00 & 65 \\ 10 & 6.00 & 46.50 & 52.50 & 75 \\ \hline \end{array}$$ a. At a product price of $\$ 56,$ will this firm produce in the short run? Why or why not? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? Explain. What economic profit or loss will the firm realize per unit of output? b. Answer the relevant questions of 4 a assuming product price is $\$ 41$ c. Answer the relevant questions of 4 a assuming product price is $\$ 32$ d. In the table below, complete the short-run supply schedule for the firm (columns 1 and 2 ) and indicate the profit or loss incurred at each output (column 3). $$\begin{array}{cccc} \hline \begin{array}{c} \text { (1) } \\ \text { Price } \end{array} & \begin{array}{c} \text { (2) } \\ \text { Quantity } \\ \text { Supplied, } \\ \text { Single Firm } \end{array} & \begin{array}{c} \text { (3) } \\ \text { Profit }(+) \\ \text { or Loss }(-) \end{array} & \begin{array}{c} \text { (4) } \\ \text { Quantity } \\ \text { Supplied } \\ 1500 \text { Firms } \end{array} \\ \hline \$ 26 & \text {_____} & \$ \text {_____} & \text {_____} \\ 32 & \text {_____} & \text {_____} & \text {_____} \\ 38 & \text {_____} & \text {_____} & \text {_____} \\ 41 & \text {_____} & \text {_____} & \text {_____}\\ 46 & \text {_____} & \text {_____} & \text {_____} \\ 56 & \text {_____} & \text {_____} & \text {_____} \\ 66 & \text {_____} & \text {_____} & \text {_____} \\ \hline \end{array}$$ e. Explain: "That segment of a competitive firm's marginalcost curve that lies above its average-variable-cost curve constitutes the short-run supply curve for the firm." Illustrate graphically. f. Now assume that there are 1500 identical firms in this competitive industry; that is, there are 1500 firms, each of which has the cost data shown in the table. Complete the industry supply schedule (column 4). g. Suppose the market demand data for the product are as follows: $$\begin{array}{|cc|} \hline \text { Price } & \begin{array}{c} \text { Total Quantity } \\ \text { Demanded } \end{array} \\ \hline \$ 26 & 17,000 \\ 32 & 15,000 \\ 38 & 13,500 \\ 41 & 12,000 \\ 46 & 10,500 \\ 56 & 9500 \\ 66 & 8000 \\ \hline \end{array}$$ What will be the equilibrium price? What will be the equilibrium output for the industry? For each firm? What will profit or loss be per unit? Per firm? Will this industry expand or contract in the long run?
I need help, please. Price elasticity of demand. 1. If the quantity demanded changes from 5 to 50 units as the price changes from $14 to $8, the elasticity is ____________ and demand is said to be ____________ . (2 points) (In the second blank, you can say if it is elastic or inelastic) 2. If the quantity demanded changes from 750 to 225 units as the price changes from $3 to $12, the elasticity is ____________ and demand is said to be ____________ . (2 points) 3. The Dixie Chicken sells 2000 Burger platters per month at $4.50 each. The own-price elasticity for this platter is estimated to be -1.60. If the Dixie Chicken decreases the price of the platter by 70 cents: (6 points) How many platters will the chicken sell? __________ The Chicken's revenue will change by $__________ Consumers will be ____________ off as a result of this price change. Income elasticity of demand 4. If the quantity demanded changes from 10 to 15 as income changes from $80,000 to $125,000 then the income elasticity is ____________ and the good is called ____________ . (2 points) 5. If the quantity demanded changes from 60 to 35 as income changes from $15,000 to $7,000 then the income elasticity is ____________ and the good is called ____________.(2 points) 6. If the income elasticity is -2 and income changes by 15%, the quantity demanded changes by ____________ and the good is called ____________ . (2 points) Cross Price Elasticity of Demand 7. If the quantity demanded of good X changes from 85 to 145 units as the price of good Y changes from $20 to $25, the cross-price elasticity is ____________ and the goods are called ____________. (2 points) 8. If the quantity demanded of good X changes from 90 to 65 units as the price of good Y changes from $13 to $14, the cross-price elasticity is ____________ and the goods are called ____________. (2 points) 9. The cross-price elasticity for hamburger demand with respect to the price of hamburger buns is equal to -0.60. (4 points) (a) If the price of hamburger buns rises by 5 percent, what impact will that have on hamburger consumption? (b) What is the demand relationship between these products?
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