Question

Refer to Figure 6-7. Using the total revenue test to verify the price elasticity between points a and b on the demand curve, demand is

Figure 6-7

Question 2 options:

	A) perfectly inelastic.
	B) unit-elastic.
	C) perfectly elastic.
	D) elastic.

Answer 1

Answer

Elasticity of demand=(change in quantity/average quantity)/(change in price/average price)
Change in quantity=10000-5000=5000
average quantity=(10000+5000)/2=7500
change in price=4-8=-4
average price=(4+8)/2=6
Elasticity of demand=(5000/7500)/(-4/6)
=-1
the demand is unit elastic

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the revenue should be same if the demand is unit elastic in this ranges

total revenue =P*Q
TR1=8*5000=40000
TR2=4*10000=40000

the revenue is same on the both places so the demand is unit elastic

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Option B