Question

Question 3

Assume the following demand curve: Q = 100,800 – 3,904(P). Calculate elasticity for a price change from $17.10 to $18.70. Report your answer as a POSITIVE number, rounded to one decimal place.

Question 4

Assume the following demand curve: Q = 1,400 – 135(P). Variable costs = $3.50. Calculate the optimal price. Round to two decimal places.

Answer 1

3. Elasticity for a price = %change in quantity / %change in price

P1 = 17.10

Q1 = 100800 - 3904(P1) = 34041.6

P2 = 18.70

Q2 = 100800 - 3904(P2) = 27795.2

% change in quantity = (Q1-Q2) / (avg of Q) = (34041.6-27795.2) / [(34041.6+27795.2)/2] = 6246.4/30918.4 = 0.2020

% change in price= (P1-P2) / (avg of P) = (17.10-18.70)/[(17.10+18.70)/2] = -1.6/17.9 = -0.089

Elasticity for price = 0.2020/(-0.089) = -2.269 To answer this = 2.3 after rounding off and absolute.

4. Using concept of Marginal revenue = Marginal cost

and marginal revenue is derivative of total revenue

total revenue = price * quantity

Optimal price = 6.93

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