Question

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 $125 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 pér day.  

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

Answer 1

Ans:

Explanation:

Total Revenue = Price * Quantity

Price ( $)	Quantity ( Bikes)	Total Revenue ( $)
50	60	3000
75	54	4050
100	48	4800
125	42	5250
150	36	5400
175	30	5250
200	24	4800

Ans: According to the midpoint method, the price elasticity of demand between points A and B is approximately  - 0.6

Explanation:

Initial price ( P1) = $125

New price ( P2 ) = $100

Initial quantity ( Q1) = 42

New quantity ( Q2) = 48

PED  = ∆Q/∆P *( P1 + P2 / Q1 + Q2)

= {( 48 - 42 ) / ( 100 - 125 ) } * {( 125 + 100 ) / ( 42 +48)}

= ( 6 / -25 ) * ( 225 / 90)

= -0.24 * 2.5

= - 0.6

Ans: Suppose the price of bikes is currently $125 per bike , shown as point A on the initial graph. Because the demand between points A and B is inelastic, a $25 per bike decrease in price will lead to decrease in total revenue per day.

Ans: In general, in order for a price increase to cause an increase 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.