Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Question
Chapter 3, Problem 1CACQ
To determine
(a)
The revenue at different price levels and check the elasticity at that price range.
Expert Solution
Answer to Problem 1CACQ
Revenue increases and demand is elastic in this range.
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, demand is elastic here.
Economics Concept Introduction
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.
To determine
(b)
Revenue and elasticity at given price level.
Expert Solution
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.
To determine
(c)
Revenue and elasticity at given price level.
Expert Solution
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)
Ch. 3 - Prob. 1CACQCh. 3 - The demand curve for a product is given by...Ch. 3 - Prob. 3CACQCh. 3 - Suppose the own price elasticity of demand for...Ch. 3 - Suppose the cross-price elasticity of demand...Ch. 3 - You are the manager of a firm that receives...Ch. 3 - A Quant jock from your firm used a linear demand...Ch. 3 - Prob. 8CACQCh. 3 - Prob. 9CACQCh. 3 - Prob. 10CACQ
Ch. 3 - Prob. 11PAACh. 3 - Prob. 12PAACh. 3 - For the first time in two years, Big G (the cereal...Ch. 3 - Prob. 14PAACh. 3 - You are a division manager at Toyota. If your...Ch. 3 - You are a manager in charge of monitoring cash...Ch. 3 - As newly appointed Energy Czar. your goal is to...Ch. 3 - As the owner of Barneys Broilers—a fast-food...Ch. 3 - Prob. 19PAACh. 3 - With milk sales sagging of late. The Milk...Ch. 3 - Prob. 21PAACh. 3 - Prob. 22PAACh. 3 - Prob. 23PAA
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