Question

Price per bag Total Revenue $70 $2,100 30 $60 $2,400 40 $50 $2,500 50 $40 60 $2,400 $30 $2,100 70 $20 $1,600 80 a) Calculate the total revenue at each price point. At which price would you advise the bookstore to sell bags? b) To assist with your presentation to the bookstore staff, you plan to have a discussion on elasticity. Calculate the price elasticity of demand between the following price points and indicate whether demand is elastic or inelastic: $70 and $60 $40 and $30 c) Graph both the demand and total revenue curves for these bags. Be sure to label the axes and the optimal price/quantity. e to search ace

Answer 1

P	Q	TR
70	30	2100
60	40	2400
50	50	2500
40	60	2400
30	70	2100
20	80	1600

TR=P*Q

The bookstore would sell the bags where total revenue is maximum which is at P=50

b) Elasticity between 70 and 60

E = [40-30/(40+30/2)]/[60-70/(60+70/2)] = [10/35]/[10/65] = 0.2857/0.1538 = 1.8

Between 40 and 30

E = [70-60/(70+60/2)]/[30-40/(30+40/2)] = [10/65]/[10/35] = 0.1538/0.2857 = 0.54

c) Demand curve:-

20 40 60 80 100

TR curve:-

TR 3000 2500 2000 1500 TR 1000 500 o 20 40 60 80 100