Question

Price $400 50 100 150 200 Quantity of good X In the diagram above, the elasticityof demand between a price of $100 and $200 is (use the midpoint method of calculation to find your answer). This means that this section of the demand curve is choose your answer.. suggesting that this increase in price will cause total revenues to choose your answer... To verify the intuition derived from the total revenue rule, the total revenues earned at a price of $100 are (enter your answer in thousands such as 12,000) dollars, while the total revenues earned at a price of $200 are (enter your answer in thousands such as 12,000) dollars.

Answer 1

Price in $ + o 50 100 150 200 Quantity of Good X

In the above diagram the horizontal axis represents the quantity of Good X and the vertical axis represents price in dollars. The demand curve shows various quantity demanded for Good X at respective prices. At the price $100 the quantity demanded for Good X was 150 units, when price rose to $200 the quantity demanded for Good X has fallen to 100 units

The above information can be categorised as

P1=$100                                               Q1=150 units

P2=$200                                               Q2=100 units

∆P = P2 – P1 = 200-100 =100                       ∆Q=Q2-Q1 = 100-150 = -50

Price elasticity of demand = ∆Q/∆P x [{(P1+P2)/2}/{(Q1+Q2)/2}]

= (-50/100)[{(100+200)/2}/{(150+100)/2}]= -0.5(150/125)= - 0.6

Negative sign indicates that good X is a normal good

(A) in the diagram shown above the elasticity of demand between a price of $100 and $200 is = 0.6

Price elasticity of demand (0.6) is < 1, so here the price elasticity demand is less elastic or inelastic

(B) This means that this section of the demand curve is inelastic

Price of good X in $ (P)	Quantity of Good X (Q)	Total Revenue in $= PxQ
100	150	15,000
200	100	20,000

(C) Increase in price will cause total revenue to Increase

It is clearly evident from the table that increase in price leads to increase in total revenue.

Though the demand for good X is inelastic so an increase in price could results in increase in total revenue

(D) to verify the intuition derived from the total revenue rule the total revenue earned at a price of $100 are $15,000

It is clearly evident from the table that the Total revenue = Price X quantity = 100 X 150 = $15,000

(E) the total revenue rule the total revenue earned at a price of $200 are $20,000

It is clearly evident from the table that the Total revenue = Price X quantity = 200 X 100 = $20,000