Question

The schedule below shows the number of packs of bagels bought in Davis, California, each day at a variety of prices. Price ($/pack) Quantity (packs/day)

6 0

5 3,000

4 6,000

3 9,000

2 12,000

1 15,000

0 18,000

a. Graph the daily demand curve for packs of bagels in Davis. Instructions: Use the tool provided to plot each price-quantity combination listed in the table above (plot 7 points total).

b. Calculate the price elasticity of demand at the point on the demand curve at which the price of bagels is $4 per pack. Instructions: Enter your response rounded to one decimal place.

c. If all bagel shops increased the price of bagels from $4 per pack to $5 per pack, what would happen to total revenue? Instructions: Enter your responses as whole numbers. Total revenue would from $ to $ .

d. Calculate the price elasticity of demand at a point on the demand curve where the price of bagels is $1 per pack. Instructions: Enter your response rounded to one decimal place.

e. If bagel shops increased the price of bagels from $1 per pack to $2 per pack, what would happen to total revenue? Instructions: Enter your responses as whole numbers. Total revenue would from $ to $ .

Answer 1

a. Daily demand curve is drawn below.

b. Note that the slope of demand function is -3000. When P is 4, Q is 6000. Price elasticity of demand at this point on the demand curve = slope x P/Q or -3000*4/6000 = -2.

c. If all bagel shops increased the price of bagels from $4 per pack to $5 per pack, Total revenue would decline from $(4*6000) = $24000 to $(5*3000) = $15000 .

d. When P is 1, Q is 15000. Price elasticity of demand at this point on the demand curve = slope x P/Q or -3000*1/15000 = -0.5

e. If bagel shops increased the price of bagels from $1 per pack to $2 per pack, Total revenue would increase from $(1*15000) = 15000 to $(2*12000) = 24000 .