1What is the relationship between the form of elasticity (e.g. unitary) and total revenue? 2Define each...

1What is the relationship between the form of elasticity (e.g. unitary) and total revenue?

2Define each of the following: a) elastic demand b) unitary demand c) inelastic demand.

Expert Solution

Let P be the price and Q be the quantity of a commodity.

The total revenue earned , TR=P*Q

Differentiating both sides wrt Q we get,

dTR/dQ= P+Q(dP/dQ)

dTR/dQ=P- (-){(Q/P)*(dP/dQ)}*P

dTR/dQ = P(1- 1/Elasticity )

If elasticity increases 1/Elasticity falls. P(1- 1/Elasticity ) increases.Total revenue will increase , as a result of change in Q.
If elasticity falls 1/Elasticity increases. P(1- 1/Elasticity ) falls. Total revenue will fall , as a result of change in Q.
For unit elasticity dTR/dQ=0 which means there will be no change in total revenue.

Rahul Sunny answered 2 years ago

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