Question

ng.cengage.com MindTapCengage Learning CENGAGE | MINDTAP Homework (Ch 05) Back to Assignment Attempts: 0 Keep the Highest: 0/4 6. Elasticity and total revenue The following graph shows the daily demand curve for bikes in Denver Use the green rectangle (triangle symbols) to compute total revenue at various prions along the demand curve. Note: You will not be graded on any changes made to this graph. Total Revenue CE (Dollars per bike)

Answer 1

Q. The following graph shows the daily demand curve for bikes in Denver To calculate the total revenue, Price 45° line M Midpoint Demand + EFIT AD 9 10 15 20 25 30 35 40 45 50 55 60 Quantity Demand I 55 50 45 yo 35 Total Revenue OXS5 = 0 500 20X45 = 900 40 Y30 = 1200 40X35 - 1400 50X 30 = 1500 60 X2 = jso 0 70 X 20 = 1400 80x15 = 1200 90x10 = 900 TOOXS = 500

Plot graph of total revenue, when $20, $30, $40, $50 the market price is $60 $70 and $80 1740 1620 1500 1380 (40,100) (60/1500) (60/1500) (70, 1400) Revenue 1260 (30;1200) (38,1200) Total Revenue 1140 10207 Curoue - Total (20,900) 10 20 30 40 50 60 70 Price 80 90 100 110 120 0 1 According to the midpoint method, the price elasticity of demand between point A and B is approximahely Point A point B 40 I 30 a 35 I 40 Midpoint Method Q2-Q, PED Z Ang a (ait 22) un P2-pl Aug p/ Pitt)

PED = 40-35 r 40+35) (40835) а 37.5 -lo 30-40 (30+40) 35 PED = -7 = -0.46 ~ 0047. Suppose, the price of bikes is currently $30 ber bike shown as point B. Because the demand between A and B és 40-35'units, (a loss of 5 units) , a $ 10 þer bike increase in price will lead to th an increase of $200 in total revenue per day. In general, in order for a borice decrease to cause a decrease în total revenue demand must be fall of increase no change PXQ = TR w - to only when o also falls, or I a does not change or Q changes but the effect of change in d is really small to make an charge éncrease in total revenue.