Question

Quality demanded Price (thousands of (dollars per ticket) tickets per week) 10 1 00 200 6 300 400 200 6) The table above provides information about the demand for tickets. Based on the information: a. What ticket price should you charge to maximize revenues? b. What is the elasticity of demand between $6 and 84, using the midpoint method? c. How does the price elasticity of demand change in size as the price goes down from $10 to $8. from $8 to $6, and ultimately from $6 to

Answer 1

6. Given,

P	Q	TR
10	100	$ 1,000
8	200	$ 1,600
6	300	$ 1,800
4	400	$ 1,600
2	500	$ 1,000

A. Revenue is maximized at a price of $ 6.

Elasticity of demand can be measured using the mid point method using the following formula

$\large E = \frac{\% \triangle Q}{\% \triangle P}$

$\large \implies E = \frac{ \frac{Q_2-Q_1}{\frac{Q_2+Q_1}{2}}}{\frac{P_2-P_1}{\frac{P_2+P_1}{2}}}$

$\large \implies E = \frac{(Q_2-Q_1)(P_2+P_1)}{(Q_2+Q_1)(P_2-P_1)}$

B. Q1 = 300, P1 = 6 and Q2 = 400, P2 = 4

$\large \implies E = \frac{(400 -300)(4+6)}{(400+300)(4-6)}$

Elasticity =- 0.7142 (Inelastic)

C. When price changes from 10 to 8

$\large \implies E = \frac{(200 -100)(8+10)}{(200+100)(8-10)}$

Elasticity = - 3

When price changes from 8 to 4

$\large \implies E = \frac{(300 -200)(6+8)}{(300+200)(6-8)}$

Elasticity = - 1.4

When. Price changes from $ 6 to $ 4

Elasticity = - 0.7142

10. A. Labour hours employed before tax = 40

B. Labour hours after tax = 37

C. Equilibrium wage before tax = $ 10.75

D. Equilibrium wage after tax = $ 12

E. Tax revenue = (12 -10) × 37 = 2 × 37 = $ 74

F. Tax burden on employees = 12 - 10.75 = $ 1.25 /hour

Tax burden on workers(supply) = 10.75 - 10 = $ 0.75 / hour

This so because the demand curve that is employees curve is more inelastic than the workers supply curve. Higher the elasticity lower the tax burden.

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