Chapter 5, Problem 2.4P

A sporting goods store has estimated the demand curve for a popular brand of running shoes as a function of price. Use the diagram to answer the questions that follow.

1. a. Calculate demand elasticity using the midpoint formula between points A and B, between points C and D, and between points E and F.
2. b. If the store currently charges a price of $50, then increases that price to $60, what happens to total revenue from shoe sales (calculate P × Q before and after the price change)? Repeat the exercise for initial prices being decreased to $40 and $20, respectively.
3. c. Explain why the answers to a. can be used to predict the answers to b.