EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 12, Problem 3RQ
To determine
Marginal revenue, total revenue, elasticity of demand .
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Students have asked these similar questions
4. In one month, a beef burger restaurant sold 2,500 personal beef burger at $2.50 per pizza.
When this restaurant increased its price by 20%, its total revenue for the next month
increased to $12,500. As a result of this price increase, however, the monthly sales of
chicken meat decreased from 2,500 slices to 2,000 slices. Using the arc elasticity method,
a) find the price elasticity of demand for this restaurant's beef burger; and
b)
find the cross-elasticity of demand for chicken meat with respect to the price of
burger. Comment on your result.
Use the demand schedule to the upper right to calculate total revenue and marginal revenue at each quantity. Plot the demand, total-revenue, and marginal revenue curves and explain the relationships between them. Explain why the marginal revenue of the fourth unit of output is $3.50, even though its price is $5. Use Chapter 6’s total-revenue test for price elasticity to designate the elastic and inelastic segments of your graphed demand curve. What generalization can you make as to the relationship between marginal revenue and elasticity of demand? Suppose the marginal cost of successive units of output was zero. What output would the profit-seeking fifirm produce? Finally, use your analysis to explain why a monopolist would never produce in the inelastic region of demand.
2. Calculating marginal revenue from a linear demand curve
The blue curve on the following graph represents the demand curve facing a firm that can set its own prices.
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
PRICE (Dollars per unit)
160
TOTAL REVENUE (Dol
140
120
2250
2000
1750
1500
1250
On the graph input tool, change the number found in the Quantity Demanded field to determine the prices that correspond to the production of 0, 10,
20, 25, 30, 40, and 50 units of output. Calculate the total revenue for each of these production levels. Then, on the following graph, use the green
points (triangle symbol) to plot the results.
1000
750
500
250
0
5 10 15 20 25 30 35 40 45 50
QUANTITY (Units)
200
Demand
10
120
-40
15
30 35
QUANTITY (Number of units)
45
Graph Input Tool…
Chapter 12 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
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Similar questions
- Please answer the question and show complete solution. Thank you!arrow_forward4. The inverse demand function for a certain product is given by p= 5-0.1q, where p denotes the unit price of the product and q denotes the amount demanded. a. Find the revenue r as a function of demand q. b. Find the marginal revenue when q = 5. c. Describe the economic meaning of your answer to b. Suppose now that the unit price is currently p= 3. d. Find the current point elasticity of demand and determine whether demand is (perfectly) inelastic, (perfectly) elastic or has unit elasticity at the current price level. e. Suppose the current price increases slightly. Do you expect the revenue to increase or decrease? Explain. f. Suppose the price increases from p=3 to p=3.06. Estimate the (absolute) change in revenue. g. Now compute the exact change in revenue for a price increase from p=3 to p=3.06.arrow_forward2arrow_forward
- The Hevishus Corp. (HC) is a profit-maximizing company that owns the only cement factory in Charleston, South Carolina, and is the only seller of cement in that area; it also owns the only cement plant in Portland, Oregon, and is the only seller of cement there. 1. Its statistician-consultant has determined that the elasticity of demand for cement in Portland is -3.50 and in Charleston is -2.25, and HC has priced its cement in accordance with this information. In which city does it charge a higher price for cement? Explain. 2. The mayor of Portland has levied a $250,000 annual factory fee on any cement factory in the city. Though it is not happy about the fee, HC pays it and continues producing and selling cement in Portland. How will the fee affect the price of cement that HC sells in Portland? Explain.arrow_forward8. Total revenue from the sale of X is given by the equation R=100Q-2Q2. Calculate the value of of marginal revenue when the point price elasticity of demand when marginal revenue=20arrow_forward1.i) Assuming you are the managing director of a firm that produces goods: A,B and C .The price elasticity of demand for A is 1.2, for B it is 1.oo and C is 0.75. It is known that he's firm is experiencing serious cash flow problems and you have to increase total revenue as soon as possible. If you were in a position to set the prices for these goods, what would be your pricing strategy for each product ii) price falls from N$ 16 to N$ 12 per bottle and demand rises from 200 to 300 per bottle.calculate the PED using midpoint formula Output prices average (total)cost Total cost marginal cost Total profit/loss 10 10 -108 20 10 4 -48 30 10 5 3 40 10 6.20 40 50 10 8 60 60 10 10 60 2. i) fill in the gaps ii)in which market structure doess Johnson Electronics (Pty)Ltd operate? iii)what level of output maximizes the firms profitarrow_forward
- How do I get the price elasticity number?? and how do I graph it? P Q Price Total Elasticity Revenue $9.00 1 - 9 $8.00 2 16 $7.00 3 21 $6.00 4 24 $5.00 5 25 $4.00 6 24 $3.00 7 21 $2.00 8 16arrow_forward3. The equation of the monthly demand for cabin bags is given by: 45-p= 0'5q and the monthly average cost function is: Cme(q) = q²-39'50q+120+¹25, where p ≤ 45 is the unit price and q are the number of units sold. 3.1 What are the price and quantity that maximize the total profit? How much is this profit? 3.2 Calculate the marginal income (revenue) of the 20th unit using marginal income (revenue) and compare it to the actual additional income. 3.3 Calculate the price elasticity of demand for the quantity that maximizes profit and interpret the result obtained.arrow_forwardOnly typed answerarrow_forward
- The graph below plots the firm's total revenue curve: that is, the relationship between quantity and total revenue given by the two right columns in the table above. The five choices are also labeled. Finally, two black lines are shown; these lines are tangent to the green curve at points B and D. 90 81 72 63 54 В D 45 36 27 18 A E 100 200 300 400 500 600 700 800 QUANTITY (Dishwashers per year) TOTAL REVENUE (Thousands of dollars per year)arrow_forwardAt maximum revenue seller will sell. ......units , at the price.......$arrow_forward11. Problems and Applications Q3 Johnny Rockabilly has just finished recording his latest CD. The company can produce the CD with no fixed cost and a variable cost of $18 per CD. His record company's marketing department determines that the demand for the CD is as follows: Complete the following table by computing total revenue for each quantity listed and marginal revenue for each 5,000 increase in the quantity sold. Price Total Revenue Marginal Revenue (Dollars) Number of CDs (Dollars) (Dollars) 30 10,000 28 15,000 26 20,000 24 25,000 22 30,000 20 35,000 Profit is maximized at a quantity of CDs and a price of This results in a profit of If you were Johnny's agent, you would advise Johnny to demand a recording fee of from the record company.arrow_forward
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