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a. P=90, Q=220,
c. If I = 25
Dd Function => Q= 400-2P
Inverse Demand Function => P=200 - .50Q
AR = P = 200 – 0.50 Q
TR= PQ = 200 Q- 0.50 Q2
MR = d (TR)/dQ = 200 - Q
(8 10)
100
10 20 percent
2
(2.20 2.00)
100 10 percent
2.00
Volume of sales after the 10% discount 1.65 million 1.70 million
• Since the change in price is 10%, the price elasticity of demand for group A is
P
TR
100
0 10 20 30 40 50 Q 0 Q
P
TR
100
80
800
0 10 20 30 40 50 Q 0 10 20 30 40 50 Q
P
TR
100
80
60 1200
800
0 10 20 30 40 50 Q 0 10 20 30 40 50 Q
P
TR
100
80
60 1200
40
800
0 10 20 30 40 50 Q 0 10 20 30 40 50 Q
P
TR
100
80
60 1200
40
20 800
0 10 20 30 40 50 Q 0 10 20 30 40 50 Q
P
TR
100
Elastic
80
60 1200
40
20 800
0 10 20 30 40 50 Q 0 10 20 30 40 50 Q
Elastic
2/26/2018 MBA ZC416, Managerial Economics, Monika Gupta 29
Elasticity, Total Revenue and Linear Demand
P
TR
100
Elastic
80
60 1200
Inelastic
40
20 800
0 10 20 30 40 50 Q 0 10 20 30 40 50 Q
Elastic Inelastic
2/26/2018 MBA ZC416, Managerial Economics, Monika Gupta 30
Elasticity, Total Revenue and Linear Demand
P TR
100
Elastic Unit elastic
80 Unit elastic
60 1200
Inelastic
40
20 800
0 10 20 30 40 50 Q 0 10 20 30 40 50 Q
Elastic Inelastic
2/26/2018 MBA ZC416, Managerial Economics, Monika Gupta 31
Demand, Marginal Revenue (MR) and Elasticity
1. An $5
increase
in price... 4
100 Quantity
2. ...leaves the quantity demanded unchanged.
2/26/2018 MBA ZC416, Managerial Economics, Monika Gupta 40
Inelastic Demand- Elasticity is less than 1
Price
Example??
1. A 25% $5
increase
in price... 4
Demand
90 100 Quantity
2. ...leads to a 10% decrease in quantity.
2/26/2018 MBA ZC416, Managerial Economics, Monika Gupta 41
Unit Elastic Demand- Elasticity equals 1
Price
Example??
1. A 25% $5
increase
in price... 4
Demand
75 100 Quantity
2. ...leads to a 25% decrease in quantity.
2/26/2018 MBA ZC416, Managerial Economics, Monika Gupta 42
Elastic Demand- Elasticity is greater than 1
Price
Example??
1. A 25% $5
increase
in price... 4
Demand
50 100 Quantity
2. ...leads to a 50% decrease in quantity.
2/26/2018 MBA ZC416, Managerial Economics, Monika Gupta 43
Perfectly Elastic Demand- Elasticity equals infinity
Price
1. At any price Example??
above $4, quantity
demanded is zero.
$4 Demand
2. At exactly $4,
consumers will
buy any quantity.
5 Ed = 1 (unitary elastic)
4
3 Ed < 1 (inelastic)
2
1 Ed = 0
0 1 2 3 4 5 6 7 8 9 10
Quantity (perfectly inelastic)
2/26/2018 MBA ZC416, Managerial Economics, Monika Gupta 45