Question

. Elasticity (related to Total Revenue): (Please show your steps & decision rules)

The demand schedule for a specific computer software is as follows

Price (per copy of software)	Quantity demanded (in million)
525	68
550	64
590	62
612	60
680	55
750	48
900	43
935	40
1010	37

1. At what price is total revenue a maximum and what quantity sold? Show your calculation/numbers
2. When the price falls from $750 to $590, is the demand for this software elastic or inelastic or others? Explain why.
3. When the price increases from $680 to $935, is the demand for this software elastic or inelastic or others? Explain why.

Answer 1

A) TR= P*Q

It is maximum when P = 680

Price	QD	TR
525	68	35700
550	64	35200
590	62	36580
612	60	36720
680	55	37400
750	48	36000
900	43	38700
935	40	37400
1010	37	37370

B) E = [Q2-Q1/(Q2+Q1/2)]/[P2-P1/(P2+P1/2)]

= [62-48/(62+48/2)]/[590-750/(590+750/2)]

= [14/55]/[160/670]

= 0.2545/0.2388

= 1.06

The demand is elastic as the value is more than one.

C) E= [40-55/(40+55/2)] / [935-680/(935+680/2)]

= [15/47.5] / [255/807.5]

= 0.3158/0.3158

= 1

The demand is unitary elastic as the value is equal to 1.