problem set 3 - answer - ECON 101 -Fall 2007 PROBLEM SET...

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Unformatted text preview: ECON 101 -Fall 2007 PROBLEM SET 3-ANSWER KEY Professor Serrano-Padial Due on Tuesday Oct 2nd at 9pm in your TA mailbox. Please remember to write down your name, the name of your TA and your discussion section. Staple pages together. 1 Elasticity The last time I visited the great island of Lala, the islanders needed to buy frisbees to compete at the inter-island games. 1. The table below shows their demand for frisbees as a function of the price: p f q f 5 20 13 12 What is the price elasticity of demand at p f = 5? Is the demand elastic? The sole manufacturer of frisbees is considering raising the price (she currently charges p f = 5). Is it a good idea? Why? Answer: e p = 0 . 25. The demand is inelastic. She should increase prices because total revenue will go up. 2. Assume that the demand given by the above table is linear. What is the price elasticity of demand at p = 10? Is demand more or less elastic than at p = 5? Is it elastic?...
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This note was uploaded on 04/14/2009 for the course ECON 101 taught by Professor Hansen during the Fall '07 term at University of Wisconsin.

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problem set 3 - answer - ECON 101 -Fall 2007 PROBLEM SET...

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