Question

1. Use the hypothetical demand schedule in the table below to answer the questions followed. The table describes the number of visits per day in the New York Zoo in Bronx, NY with their corresponding prices as admission ticket price per day. Ticket Price Admission Visits Per Day $50 200 hotell 4000 600 0 30 1,000 a. Use the price and quantity data above to draw the Demand curve b. What is the slope of the demand curve drawn? Is the slope constant? id song c. Using the slope estimated in Qlb, estimate the price elasticity of demand at Price at $20 and the same at Price $40. com d. Find the price from the table or the demand curve drawn at which total revenue is maximum and estimate the value of maximum revenue at that price. e. Estimate the arc elasticity between the Prices of $30 and $50 by using the mid-point average equation for calculating price elasticity of demand,

Answer 1

a)

Price($) - Demand curve 0 1000 1200 200400 600 800 Quantity (visit per day)

b) Slope of the demand curve = Change in quantity / Change in price = 200 / - 10 = -20. Yes, the slope is constant at all points.

c) PED at price of $20 = (∆Q / ∆P) * (P / Q) = -20 * (20 / 800) = -0.5

The absolute value of PED is 0.5.

PED at price of $40 = (∆Q / ∆P) * (P / Q) = -20 * (40 / 400) = -2

The absolute value of PED is 2.

d)

P($)	Q	TR($)=P*Q
50	200	10000
40	400	16000
30	600	18000
20	800	16000
10	1000	10000

From the table it is seen that total revenue is maximum at the price of $30.

e) Here, P1 = 30   Q1 = 600

               P2 = 50    Q2 = 200

PED = (Q2 - Q1) / (P2 - P1) * (P1 + P2) / (Q1 + Q2)

         = (200 - 600) / (50 - 30) * (30 + 50) / (600 + 200)

         = (-400 / 20) * (80 / 800)

          = -32,000 / 16,000

          = -2

The absolute value of PED is 2.