(a)
The revenue at different
Answer to Problem 1CACQ
Revenue increases and
Explanation of Solution
If price is fall from $12 to $10,
When P = $12,
Revenue = P*Q
= $12*1
= $12
When P = $10
Revenue = $10*2 = $20
Therefore, if price is fall from $12 to $10 then the revenue is rises from $12 to $20.
In this range, the ratio of price and quantity is greater than 1, i.e.,
So,
Elasticity shows the responsiveness of quantity demanded due to the change in the price of a commodity. The change in revenue due to the change in price depends upon the elasticity of the demand curve.
If demand is elastic, an increase (decrease) in price will lead to a decrease (increase) in total revenue. If the demand is inelastic, an increase (decrease) in price will lead to an increase (decrease) in total revenue. Total revenue is maximized at the point where demand is unitary elastic.
(b)
Revenue and elasticity at given price level.
Answer to Problem 1CACQ
Revenue is decreases here and demand is inelastic.
Explanation of Solution
If price is fall from $4 to $2
When P = $4,
Revenue = P*Q
= $4*5
= $20
When P = $2
Revenue = $2*6 = $12
Therefore, if price is fall from $4 to $2 then the revenue is fall from $20 to $12.
In this range, the ratio of price and quantity is less than 1, i.e.,
So, demand is inelastic here.
(c)
Revenue and elasticity at given price level.
Answer to Problem 1CACQ
Revenueis maximum at p = $7 and elasticity at this price is equal to 1.
Explanation of Solution
Total revenue is maximized at the point where demand is unitary elastic.
When the percentage change in price is equal to the percentage change in quantity demanded, then the demand is unitary elastic.
At P = $7
Q = 3.5
Revenue = $24.5
When p = $7 and Q = 3.5, the elasticity is equal to 1.
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Chapter 3 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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