Analysis of demand elasticity and total revenue.
Demand elasticity and total revenue.
a. You are given the demand curve in the diagram above, for which several points are contained in the table below. Its equation can be written Q = 12 – P.
Note that ΔQ/ ΔP = -1.
Calculate the arc elasticties for the segments between the points, the point elasticties, and the total revenue.
Draw in the total revenue curve on the diagram above, and either the elasticties along the demand curve (note separate scale).
For the elasticties use ΔQ /ΔP times P/Q. (As discussed in the Appendix, you may express elasticties as either positive numbers as in the e=text or negative numbers as in the Appendix.)
| P |
Q |
Arc |
Point |
TR |
| $11 |
1 |
|
|
|
| 9 |
3 |
|
|
|
| 7 |
5 |
|
|
|
| 5 |
7 |
|
|
|
| 3 |
9 |
|
|
|
| 1 |
11 |
|
|
|
b. What is the relationship between total revenue and elasticity?
c. Assume that the demand curve shifts to the right with two more units sold at every price. Compute two or three elasticties to illustrate the general proportion that the new demand curve is less elastic than the old at each price.