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Chapter 19: Q. 8 (page 434)

Suppose that over a range of prices, the price elasticity of demand varies from 15.0 to 2.5. Over another range of prices, the price elasticity of demand varies from 1.5 to 0.75. What can you say about total revenues and the total revenue curve over these two ranges of the demand curve as price falls?

Short Answer

Expert verified

Decline in the price would tend to raise the revenue in terms of elastic demand whereas reduction in price would lead to reduce total revenue.

Step by step solution

01

Introduction

When the price elasticity of demand ranges between 15.0and 2.5, total revenue can be raised by lowering the price. Producers can increase their profits by lowering the price in the case of elastic demand.

If the price elasticity of demand fluctuates from 1.5to 0.75, increasing the price will maximize overall income. The overall revenue curve will climb as the price rises. Along the whole revenue curve, there will be an upward trend.

02

Explanation

In terms of elastic demand, a decrease in price would tend to increase revenue, whereas a decrease in price would result in a decrease in total income.

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Most popular questions from this chapter

An increase in the market price of men's haircuts, from \(15per haircut to \)25per haircut, initially causes a local barbershop to have its employees work overtime to increase the number of daily haircuts provided from 35to45. When the $25 market price remains unchanged for several weeks and all other things remain equal as well, the barbershop hires additional employees and provides 65 haircuts per day. What is the short-run price elasticity of supply? What is the long-run price elasticity of supply?

Take a look at Figure 19-2. Work out the calculation for the price elasticity of demand between prices of \( 6 per reservation and \) 5 per reservation to prove that the value is 1.

A 5percent increase in the price of digital apps reduces the amount of tablet devices demanded by 3percent. What is the cross price elasticity of demand? Are tablet devices and digital apps complements or substitutes ?

In a local market, the monthly price of Internet access service decreases from \(20per account to \)10per account, and the total quantity of monthly accounts across all Internet access providers increases from 100,000to 100,000 . What is the price elasticity of demand? Is demand elastic, unitelastic, or inelastic?

The diagram below depicts the demand curve for "miniburgers" in a nationwide fast-food market. Use the information in this diagram to answer the questions that follow.

Quantity (mini burgers per day)

a. What is the price elasticity of demand along with the range of the demand curve between a price of \(0.20per miniburger and a price of role="math" localid="1651796932841" \)0.40per miniburger? Is demand elastic or inelastic over this range?

b. What is the price elasticity of demand along with the range of the demand curve between a price of \(0.80 per miniburger and a price of \)1.20 per miniburger? Is demand elastic or inelastic over this range?

c. What is the price elasticity of demand along with the range of the demand curve between a price of \(1.60 per miniburger and a price of \)1.80 per m ? Is demand elastic or inelastic over this range?
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