Answered: Calculate the price elasticity of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Calculate the price elasticity of demand when the price of ice-creamincreases from $2 to $3 using the mid-point formula and classify the product based on the price elasticity of demand. Compute the changes in total revenue over this price range.

(ii)Calculate the price elasticity of demand when the price of ice-creamincreases from $3 to $4 using the mid-point formula and classify the product based on the price elasticity of demand. Compute the changes in total revenue over this price range.

(iii)Based on your answers in (i) and (ii), discuss the relationship between the total revenue and the price elasticity of demand.

(c)A producer will need cover all costs in order to remain in the market. Do you agree? Explain.

The schedule below shows the quantity of ice-cream bought in a town at a variety
of prices.
Quantity purchased per day
120
Price of Ice-cream ($)
90
60
234

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