Question

5. The variation in elasticity and total revenue along a demand curve The following graph shows the daily demand curve for bippitybops in New York City. 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. 100 Total Revenue 80 O 70 2 60 Q 50 T O 40 30 20 10 Demand 0 6 12 18 24 30 36 42 48 54 60 QUANTITY (Bippitybops per day)

Answer 1

At point A, price = 50 and Quantity = 18 At point B, price = 40 and Quantity = 24 According to the mid point method of price of Demand, e = Q_1 - Q_1/(Q_1 + Q_1/2)/p_2 - P-1/(p_2 + p_1/2) Hence, p_1 = 40: Q_1 = 24: p_2 = 50: Q_2 = 18 \r\n E = 18 - 24/(18 + 24/2)/50 - 40 (50 + 40/2) = -6/21/10/45 = -6/21 times 45/10 = -1.3 therefore According to the midpoint formula, the PED between points A and B on the initial graph is approximately - 1.3 The absolute value of elasticity between these two points is 1.3, therefore PED between points A and B is elastic If price is $ 50 , then $10/ decrease in price will lead to increase in total from $90 to $ 960 In general, in order for a price increase to cause a downarrow in TR, demand must price elastic, because in case of elastic demand, change in price and