Question

1. Suppose that the total revenue received by a company selling basketballs is $780 when the price is set at $30 per basketball and $780 when the price is set at $20 per basketball. Using only total revenue (NOT the midpoint formula), Identify whether demand is elastic, inelastic, or unit-elastic over this price range. Show work and EXPLAIN!

Answer 1

There is a relation between price and revenue to find the elasticity of demand.

Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

Ed > 1 (Elastic) (% Change in Quantity Demanded is greater than % Change in Price)

Ed < 1 (Inelastic) (% Change in Quantity Demanded is less than % Change in Price)

Ed = 1 (Elastic) (% Change in Quantity Demanded is equal to % Change in Price)

Now coming to the question

Price	Quantity	Total Revenue
$30		$780
$20		$780

If due to a change in price, total revenue doesn't change that means demand is unit - elastic

Note

1) There is an inverse relationship between price and total revenue when demand is elastic.

2) There is a direct relationship between price and total revenue when demand is inelastic

3) If revenue doesn't change due to a change in price then demand is unit-elastic