Question

Suppose a firm sells 100 units when the price is $6, but sells 250 units when the price falls to $4.

1-Calculate the firm's revenue at each of the prices.

2-Calculate the price effect and the quantity effect.

3-Use the price effect and the quantity effect to determine whether demand is elastic or inelastic over this range.

4-Verify your previous answer by calculating the elasticity of demand using the midpoint formula.

Answer #1

1)Firm revenue = price * quantity sold

Firm revenue at price $6 = 6*100 = 600$

At price $4 = 4*250 = 1000$

2 )Price effect means after a price increase each unit sold sells at a higher price, raising revenue.

Quantity effect - after a price increase ,fewer units are sold,lowering revenue.

The price elasticity determines which effect is stronger.

3. Price elasticity = % change in quantity demanded ÷ % change in price

= -1.50 ÷ 0.3333

= - 4.50

% change in quantity demanded = (100-250) ÷ 100 = -1.50

% change in price = (6-4) ÷ 6= 0.3333

price demand is elastic because it is greater than 1.

4. Mid point formula = q2-q1 ÷((q2+q1 )÷ 2) / P2 -p1 ÷ (( p2+p1 ) ÷ 2)

= 250-100 ÷ ((250+ 100) ÷2 / 4-6 ÷ ( (4+6 )÷ 2

= 150 ÷ 175 / -2 ÷ 5

= 0.86 / -0.4

= -2.15

Here price elasticity of demand is greater then 1 hence it is elastic .

16. At a price of $4, quantity demanded is 100; and at a price
of $6, quantity demanded is 120. Using the midpoint formula, the
price elasticity of demand is ________ and demand is ________.
A) 0.1; inelastic
B) 0.45; inelastic
C) -2.2; elastic
D) -10; elastic

The price of a new portable CD player falls from $100 to $90.
The quantity of CD players demanded rises from 15,000 per year to
20,000 per year. Use the midpoint formula to calculate the price
elasticity of demand for portable CD players. Is the demand
elastic, inelastic, or unit elastic?

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!

Categories of Price Elasticity of Demand
For each of the following values for price elasticity of demand,
indicate whether demand is elastic, inelastic, perfectly elastic,
perfectly inelastic, or unit elastic. Also, indicate (increase,
decrease, no effect) what would happen to total revenue if a firm
raised the price in each elasticity range.
Price Elasticity of Demand
equals
Descriptionn of Elasticity
Total Revenue Change
-2.5
-1.0
-0.8
-infinity
0

Consider the following combinations of price and quantity
demanded for an unnamed good. These questions ask you to perform
several percentage change an elasticity calculations. When
calculating percentage change, some questions ask you to use the
traditional formula and some ask you to use the midpoint formula.
For clarity, these two formulas are given below. The values you
calculate should be between -100 and 100 (not -1 to 1). Please
include the sign (if negative) in all of your responses....

5. Suppose that Bobo purchases 1 pizza per month when the price
is $19 and 3 pizzas per month when the price is $15. What is the
price elasticity of Bobo’s demand curve?
Multiple Choice
a.0.235
b.2.00
c.4.25
d.6.33
6. Suppose that Mimi plays golf 5 times per month when the price
is $40 and 4 times per month when the price is $50. What is the
price elasticity of Mimi’s demand curve?
Multiple Choice
a.0.1
b.0.8
c.10.0
d.1.0
7....

3.
At the price of $20, the quantity demand of lawn hoses was 100.
The price increased to $25, and the quantity demanded dropped to
95.
[ The two points on the demand curve are Point A: (100, $20) and
Point B (95, $25).]
a) Calculate the price elasticity of
demand for the hoses. ____________
b) Is it elastic, inelastic or unitary
elastic? _____________
What happens to the total revenue in this
case?_______________
What would happen to the total revenue...

When the price is $2, quantity demanded is 10. When the price
rises to $8, quantity demanded falls to 2.
What is the value of the elasticity of demand? Is it elastic or
inelastic?

Price Quantity Demanded $0 50 $2 40 $4 30 $6 20 $8 10 a. Using
the midpoint method, calculate the price elasticity of demand
between $4 and $6? b. Between two quantities of 30 to 20, is demand
elastic, inelastic, or unit elastic? Show the work.

Consider the following combinations of price and quantity
demanded for an unnamed good. These questions ask you to perform
several percentage change an elasticity calculations. When
calculating percentage change, some questions ask you to use the
traditional formula and some ask you to use the midpoint formula.
For clarity, these two formulas are given below. The values you
calculate should be between -100 and 100 (not -1 to 1). Please
include the sign (if negative) in all of your responses....

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