ps5 - producers. For what price is total revenue highest?...

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UNIVERSITY OF WISCONSIN Economics 101 – Fall 2005 Wei Zhang Problem Set 5 Due By October 10, 2005 (in class) Elasticity of Demand and Marginal Revenue 1) Consider the demand curve for widgets, Q D =100 – 5P. a. Find the price and quantity at which the price elasticity of demand is equal to -1 (unit elastic). b. Make a chart as follows (leave room for an additional column in part c): for each even-numbered price between 0 and 20, calculated the quantity demanded, the price elasticity of demand, and the total revenue to
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Unformatted text preview: producers. For what price is total revenue highest? Call this Q*. c. Add a column to your chart showing the change in total revenues resulting from each increase in price (the marginal revenue ). How do these values change as the elasticity changes? What is the marginal revenue at Q*? d. Use an argument based on cost-benefit analysis to suggest why a firm producing widgets would produce a quantity less than Q*....
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