Question

The following graph shows the demand curve for kumquats in Chicago. You can use the red rectangle labeled Total Revenue (cross symbols) to compute total revenue at various prices along the demand curve. To see the area of the Total Revenue rectangle, scroll over the shaded area with your mouse. You will not be graded on where you place the rectangle PRICE (Dollars per pound) 12 Total Revenue 10 D 6 X C B X 4 xA 2 Demand 0 2 4 10 12 QUANTITY (Millions of pounds per month) Help Clear All On the following graph, use the green point (triangle symbol) to plot monthly total revenue at prices of $2, $3, $4, $5, $6, $7, and $8 per pound of kumquats. Be sure to use all of the points provided. Line segments will automatically connect the points. TOTAL REVENUE (Millions of dollars per month) 28 Total Revenue 26 24 22 18 16 14. 12 1 2 3 4 5 6 7 8 9 PRICE (Dollars per pound) Clear All Help 20 According to the midpoint method, the price elasticity of demand between points B and A is approximately Suppose the price of kumquats is currently $5 per pound. Because the price elasticity of demand between points D and C is , a $1-per-pound rise in price will lead to in total revenue per month. In order for a price decrease to cause an increase in total revenue, demand must be unit elastic inelastic elastic

Answer 1

Refer the attached picture for total revenue and total revenue graph

Price Quantity TR $10.00 0 $9.00 9.00 1 16.00 8.00 21.00 7.00 3 $ 24.00 6.00 $ 5.00 $ 4.00 4 25.00 5 24.00 6 21.00 3.00 7 $ $16.00 2.00 $ $9.00 1.00 $ $ 10

Refer the attached picture for Revenue curve

Total Revenue $30.00 $25.00 $20.00 $15.00 $10,00 $5.00 S $10,00 $2.00 $4.00 $6.00 $8.00 $12.00 Price Total Revenue

Mid point elasticity can be determined using the following formula

%ΔQ e %ΔΡ

Q2-Q1 22+Q1 е: Ру-P Рэ+Pi

(Q2-Q1)(P2P) e = ()(P2- P) Q2+ Q1)

	Quantity	Price
A	7	3
B	6	4

(7 6)(4 3) e = (7 6)(3 -4)

(1)(7 -0.5384 (13)-1)

According to Mid-Point method the elasticity of demand between A and B is approximately -0.5384.

	Quantity	Price
C	5	5
D	4	6

.

(5 4 (5 +6) e = (5 +4) (5 6)

(1)(11) -1.22 e = (9)(-1)

Suppose the price of Kumquats is $ 5 per pound. Because the price elasticity between point D and C is 1.22, a $ 1 per pound rise in price will rise in price will lead to decline($1) in total revenue per month.

In order for a price decrease to cause an increase in total revenue, demand must be Elastic.

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