Supply and Demand and Total Profit

Suppose Coles and Woolworths initially sell tomatoes @ $6 per KG. Woolworths lowers its 2price by $1 per KG so that its sales rise from 10,000 KG per week to 20,000 KG per week. This implies that at this stage demand curve is elastic for tomatoes; the 17% decrease in

The elasticity of demand measures the buyer’s reaction to price as its changing. “Economists measure the degree to which demand is price elastic or inelastic with the coefficient E d, defined as E d = percentage change in quantity demanded of product X/ percentage change in price of product X” (McConnell, C. 2011). Therefore, Ed=∆Qd/∆Pd. When elasticity of demand is measured less than one, demand is considered to be inelastic. The coefficient in an inelastic range is less than one. When this takes place the percentage change in price is more than the percentage change in quantity. It can be said that when inelastic demand is present that quantity becomes less effected by price changing.

2. Total revenue falls as the price of a good is raised, if the demand for the good is ( )

b. EXPLAIN how the total revenue test can be used to determine if a demand curve is elastic or inelastic. Use two graphs with numerical examples in your response. ( ____/5)

d. Calculate the price elasticity of demand in each market and discuss these in relation to the prices to be charged in each market.

availability of substitutes, and justify how you determine the price elasticity of demand for your firm’s product. b) Explain the factors that affect consumer responsiveness to price changes for this product, using the concept of price

A. The concept of elasticity of demand has played a major role in managerial decision-making. It has greatly helped managers in consideration of whether lowering a price will lead to an increase in demand of a certain product, and if so, to what extent and whether profits would increase as a result of doing so. In this case the concept of demand becomes advantageous in that:

Formulate a reason why the elasticity of demand is an important consideration when analyzing the impact of a shift in supply and why the elasticity of supply is an important consideration when analyzing the impact of a shift in demand. Include at least one (1) example in each scenario.

This causes the price and the quantity move in opposite directions in a supply curve shift. Also, if the quantity supplied decreases at any given price the opposite will happen.

2. The quantity of peanuts supplied increased from 40 tons per week to 60 tons per week when the price of peanuts increased from $4 per ton to
$5 per ton. The price elasticity of supply for peanuts over this price range is

Mystery novels are elastic demand than required textbooks. If the price of required textbooks rose, students would have little choice but to pay the higher price. You can substitute a mystery novel, while required textbooks are a necessity with no close substitutes. If mystery novels price rise, readers would substitute other types of novels, or choose not to purchase at all. Quantity demanded of required textbooks is less responsive to price than the quantity demanded of mystery novels.

II. When price falls from 4 pounds to 3 pounds the demand for travel increases to 80,000 units- At the original market price of 4 pounds the demand for travel was 60,000 units generating revenue of 240,000 pounds. When the price is reduced to 3 pounds the resulting demand is 80,000 units and this also generates income of 240,000 pounds. When market price changes and the resulting revenue remains the same it can be said that price elasticity of demand is unitary in

Based on the above description, forms of elasticity will affect business decisions and pricing strategies differently depending on the nature and type of products or services being offered. Business organizations whose product offerings have elastic and perfectly elastic price elasticities of demand should not attempt to raise prices of their products because it will cause the quantity demanded and consequently total revenues to drop drastically. Businesses can there use the price elasticities of demand to determine whether the proposed changes in their prices will raise or reduce their total revenue. The following expression may be useful in helping business organizations to determine the impacts of elasticities on their total revenues based on the suggested price changes.

b) Suppose price is held constant at the value from part (a). What will happen to the quantity demanded if due to PVRs the number of expected viewers falls to 0.5 million? Calculate the “viewer elasticity” based on the two points. Explain in words what this value means.

Use your graphs to find Brennan's profit-maximizing output. (Hints: where MC=MR, you can estimate the level of output if not given specific number)