Question

The demand for bicycles is: Q = 4000 – 20P + 0.04Y Where Q is number...

The demand for bicycles is:

Q = 4000 – 20P + 0.04Y

Where Q is number of bicycles, P is the Price, and Y is income.

a.  Calculate the price elasticity of demand (arc elasticity) from P = $80 and Y = $50,000 to P = $84 and Y = $50,000.

b.  Calculate the point elasticity of demand for P = $80 and Y = $50,000.

c.  What happened to Total Revenue when P increased from $80 to $84?

d.  Given your answers in parts a, b, and c, is Total Revenue maximized for P = $80?  Why or why not?

e.  When Y = $50,000, what Price and Quantity maximize Total Revenue?  Show your work.

f.  Suppose the price of bicycle helmets increases.  How would this affect the elasticity of demand for bicycles?

g.  Suppose the price of electric scooters decreases.  How would this affect the elasticity of demand for bicycles?

h.  Discuss where bicycles and electric scooters are in their product life cycles.

i.  Bicycles are often purchased for ownership, while e-scooters are more typically rented.  Given this difference, which form of transportation leads itself to a stronger possible network effect?  Explain.

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