Question

1) If a firm lowers the price of its product and as a result total revenue falls, we can conclude that

1. the product's price is above the midpoint of its demand curve
2. other things constant, the firm's profits will increase
3. a demand is elastic in this price range
4. the product is inferior goods
5. demand is inelastic in this price range

2) According to Table below, what is the price elasticity of demand (using Midpoint method) when price rises from $8.50 to $9?

1. 1.26
2. 15/35
3. -1.26
4. 7/3
5. -2.058

Price Per Unit	Quantity Demanded Per Week
$10.00	25
$9.50	30
$9.00	35
$8.50	40
$8.00	45
$7.50	50
$7.00	55
$6.50	60
$6.00	65
$5.50	70
$5.00	75

3) According to Table below, what is the price elasticity of demand if price falls from $8.50 to $8.00? (Use % change equation only)

1. -17/9
2. -17/8
3. 17/8
4. 9/17
5. 17/9

Price Per Unit	Quantity Demanded Per Week
$10.00	25
$9.50	30
$9.00	35
$8.50	40
$8.00	45
$7.50	50
$7.00	55
$6.50	60
$6.00	65
$5.50	70
$5.00	75

4) According to Table below, Michelle's utility schedule is characterized by

1. diminishing total utility
2. constant marginal utility
3. total utility that increases at a decreasing rate
4. increasing marginal utility
5. exponential marginal utility

Quantity per Week	Michelle	Robert	David	Lauren
0	0	0	0	0
1	5.0	1,000	60	60
2	9.9	1,900	120	130
3	14.7	2,700	180	220
4	19.4	3,400	240	310
5	24.0	4,000	300	425
6	28.5	4,500	360	575
7	32.9	4,900	420	900
8	37.2	5.200	480	1,275
9	41.4	5,400	540	1,770

Answer 1

1) If a firm lowers the price of its product and as a result total revenue falls, we can conclude that demand is inelastic in this price range

Reason

There are three situations related to price and revenue in the elasticity of demand

(i) When demand is Elastic

Price	Quantity	Revenue
5	100	500
4	140	560

(ii) When demand is Inelastic

Price	Quantity	Revenue
5	100	500
4	120	480

(iii) When demand is Unitary

Price	Quantity	Revenue
5	100	500
4	125	500

Now

In the first situation, price falls and revenue increases.

In the second situation, price falls and revenue also falls.

In the third situation, price fall and revenue remains the same.

Hence option E is correct

2) According to the above Table, the price elasticity of demand (using Midpoint method) when the price rises from $8.50 to $9 is 7/3

Reason

Price	Quantity
8.5	40
9	35

Price elasticity of Demand = % Change in Quantity / % change in price  

% Change in Quantity = Q₂ - Q₁/ (Q₂+Q₁)/2 x 100

% Change in Quantity = 35 - 40 / (35+40)/2 x 100

% Change in Quantity = -5 / 37.5 x100

% Change in Quantity = -40 / 3 %

% change in price = P₂ - P₁/ (P₂+P₁)/2 x 100

% change in price = 9 - 8.5 / (9+8.5)/2 x 100

% change in price = 0.5 / 8.75 x 100

% change in price = 40 / 7 %

Price elasticity of Demand = % Change in Quantity / % change in price  

Price elasticity of Demand = -40 / 3 / 40 / 7

Price elasticity of Demand = 7/3 (negative sign is ignored)

Hence option D is correct

3) According to the above Table, the price elasticity of demand when the price falls from $8.50 to $8 is 17/8

Reason  

Price	Quantity
8.5	40
8	45

Price elasticity of Demand = % Change in Quantity / % change in price  

% Change in Quantity = Change in quantity / Initial quantity x 100

% Change in Quantity = 5 / 40 x 100

% Change in Quantity = 25 / 2 %

% Change in Price = Change in Price / Initial Price x 100

% Change in Price = -.0.5 / 8.5 x 100

% Change in Price = 100 / -17 %

Price elasticity of Demand = % Change in Quantity / % change in price  

Price elasticity of Demand = 25/2 / 100/-17

Price elasticity of Demand = 17 / 8 (negative sign is ignored)

Hence option C is correct

4) According to the above Table, Michelle's utility schedule is characterized by total utility that increases at a decreasing rate.

Reason

Quantity per Week	Michelle's Total Utility	Michelle's Marginal Utility
0	0	--
1	5.0	5.0
2	9.9	4.9
3	14.7	4.8
4	19.4	4.7
5	24.0	4.6
6	28.5	4.5
7	32.9	4.4
8	37.2	4.3
9	41.4	4.2

So from the above table, we can clearly see that though total utility is increasing it is increasing at a decreasing rate by seeing at marginal utility

Marginal Utility is the additional utility derived from the consumption of one more unit of the given commodity.

In simple terms marginal utility is the change in total utility by consuming an additional unit of a commodity

So every time in the above table the change is decreasing

MU_n = TU_n - TU_n-1

For eg at 2 units of good

MU₂ = 9.9 - 5.0 = 4.9

Hence option C is correct