Question

 The following graph shows the daily demand curve for bikes in Chicago.

 Use the green rectangle (triangle symbols) to compute total revenue at various prices along the demand curve. Note: You will not be graded on any changes made to this graph.

 On the following graph, use the green point (triangle symbol) to plot the annual total revenue when the market price is $50, $75, $100, $125, $150, $175, and $200 per bike.

According to the midpoint method, the price elasticity of demand between points A and B is approximately ____ ? (0, 0.14,7, 13.5)

Suppose the price of bikes is currently $25 per bike, shown as point B on the initial graph. Because the demand between points A and B is ___ (elastic, unit elastic, inelastic)?,  a $25-per-bike increase in price will lead to ___ (a decrease, an increase, no change)? in total revenue per day.

In general, in order for a price decrease to cause a decrease in total revenue, demand must be ____ (elastic, unit elastic, inelastic)?

Answer 1

Ans:

Explanation:

Total revenue = Price * Quantity

Price ( $)	Quantity ( Bikes)	Total Revenue ( $ )
			50	90	4500
75	81	6075
100	72	7200
125	63	7875
150	54	8100
175	45	7875
200	36	7200

Ans: According to the midpoint method, the price elasticity of demand between points A and B is approximately 0.14

Explanation:

Initial price ( P1) = $50

New price ( P2 ) = $25

Initial quantity ( Q1) = 90

New quantity ( Q2) = 99

PED  = ∆Q/∆P *( P1 + P2 / Q1 + Q2)

= {( 99 - 90 ) / ( 25 - 50 ) } * {( 50 + 25 ) / ( 90 + 99)}

= ( 9 / -25 ) * ( 75 / 189)

= -0.36 * 0.3968

= - 0.14 or 0.14 ( absolute value)

Ans: Suppose the price of bikes is currently $25 per bike , shown as point B on the initial graph. Because the demand between points A and B is inelastic, a $25 per bike increase in price will lead to increase in total revenue per day.

Ans: In general, in order for a price decrease to cause an decrease in total revenue, demand must be inelastic.

Explanation:

When demand is inelastic , then decrease in price will lead a decrease in total revenue.

When demand is inelastic , then increase in price will lead an increase in total revenue.