Question

able below shows the demand for haircuts from seniors and other customers on an average weekday in the local hairdressing shop.

Price of Haircut	Quantity Demanded by Seniors	Quantity Demanded by Other Customers
$22	2	8
20	6	10
18	10	12
16	14	14
14	18	16
12	22	18
10	26	20
8	30	22
6	34	24
4	38	26

a) Between the prices of $18 and $22, which of the two demands is more elastic? Round your answers to 2 decimal places.

The price elasticity of demand for seniors is   

The price elasticity of demand for other customers is   

The elasticity of demand is greater for  (Click to select)  seniors  other customers

b) What price would give the shop the greatest sales revenue?

Answer 1

Formula of elasticity = [(Q2-Q1) / ((Q2+Q1)/2) ] / [(P2-P1)/ ((P2+P1)/2)]

a)

The price elasticity of demand for seniors = [(8-12) / ((8+12)/2) ] / [(22-18)/ ((22+18)/2)]

= -6.67

The price elasticity of demand for other customers = [(2-10) / ((2+10)/2) ] / [(22-18)/ ((22+18)/2)]

= -2

The elasticity of demand is greater for seniors ( as 6.67>2)

b) Ans is $12

Price of Haircut	Quantity Demanded by Seniors	Quantity Demanded by Other Customers	Total revenue
$22	2	8	10*22 = 220
20	6	10	16*20 = 320
18	10	12	22*18 = 396
16	14	14	448
14	18	16	476
12	22	18	480
10	26	20	460
8	30	22	416
6	34	24	348
4	38	26	256

Total revenue is maximum when the seller charge $12