Question

Q1: Demand in a market is represented by Q = 500 – 50P where P is measured in dollars per unit and Q is measured in units per week. Note: Demand in this question is identical to that in Q1 of Assignment #10.

a) Complete the following table. Find elasticity between $10 and $8, between $8 and $6, between $6 and $4, between $4 and $2, and between $2 and $0. Show elasticity to two decimal places. Do not round your answers too early or your final result will be less accurate.

Price (P)	Quantity Demanded (QD)	Total Revenue (TR)	Price Elasticity of Demand (εd)	Demand is
$10			////////////////////////	////////////////////////
$9
$8			////////////////////////	////////////////////////
$7
$6			////////////////////////	////////////////////////
$5
$4			////////////////////////	////////////////////////
$3
$2			////////////////////////	////////////////////////
$1
$0			////////////////////////	////////////////////////

b) Graph the relationship between the quantity demanded and total revenue using the grid on the next page.

c) Is total revenue positively related, negatively related or unrelated to the price of the product when demand is elastic?

d) Is demand perfectly elastic, elastic, unit elastic, inelastic or perfectly inelastic when total revenue is at its maximum?

Q2: The demand for a product is represented by Q = 210 – 3P. At what price is demand unit elastic? Show clearly how you arrived at your answer.

Answer 1

a.

Price	Quantity
10	0
8	100

Ep=

=

=Infinity

Price	Quantity
8	100
6	200

=

=4

Price	Quantity
6	200
4	300

=

=1.5

Price	Quantity
4	300
2	400

=.66

Price	Quantity
2	400
0	500

=.25

b. Total revenue= price*Quantity

Price	Quantity	Total revenue
10	0	0
9	50	450
8	100	800
7	150	1050
6	200	1200
5	250	1250
4	300	1200
3	350	1050
2	400	800
1	450	450
0	500	0

c. When demand is elastic total revenue curve is positevily sloped.

When demand is elastic value od elasticity is is greater than one.

From the schedule and graph drwan above we can understant that when quantity demanded was between 0 to 5 the value of price elasticity was greater than one. over this range total revenue curve is upward sloping.

when quantity demanded increases above 5, value of price elasticity became less than one. Over this range total revenue curve is downward sloping.

d. When total revenue is maximum elasticity is unity. Total revenue is maximum when it sells 5 units .

Price	Quantity
5	250
4	300

Ep=

=1

Q2. Price unitary elastic when price is 5 and quantity is 250, where total revenue is maximum.

Price	Quantity
5	250
4	300

Ep=

=1