Question

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

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 _______ .

Suppose the price of bikes is currently $200 per bike, shown as point A on the initial graph. Because the demand between points A and B is _______ , a $25-per-bike decrease in price will lead to _______ in total revenue per day. 

In general, in order for a price increase to cause a decrease in total revenue, demand must be _______ 

Answer 1

P	Q	TR=(P)(Q)
50	100	5000
75	90	6750
100	80	8000
125	70	8750
150	60	9000
175	50	8750
200	40	8000

By plotting the given points of total revenue , we get the TR curve as shown below :

at foretatt bottest 9 80 zvao 5 3400 0 25 50 75 100 125 150175 200 225 200275300 O Price (pellers perbike)

Price elasticity of demand between points A and B is approximately -1.67.

% change in Qd = [(50-40)/(50+40)/2]100= (10/45)100= 22.22%

% change in Price = [(175-200)/(175+200)/2]100 = (-25/187.5)100 = -13.33%

Ed = (22.22/-13.33)= -1.67

Suppose the price of bikes is currently $200 per bike. Because the demand between points A and B is elastic (because Ed> 1 in absolute terms ), a $25 per bike decrease in price will lead to increase in total revenue per day.

In general , in order for a price increase to cause a decrease in total revenue , demand must be elastic.