lecture28

lecture28 - Multiply by 180 – 2 p Add 2 p to both sides...

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§ 5.3 Applications of the Natural Logarithm Function to Economics Math 121 Lecture 28 ! Elasticity of Demand (*) ! Group work

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( Elasticity of Demand ) A subway charges 65 cents per person and has 10,000 riders each day. The demand function for the subway is (a) We must first determine E ( p ). (a) Is demand elastic or inelastic at p = 65? (b) Should the price of a ride be raised or lowered in order to increase the amount of money taken in by the subway?
Now we will determine for what value of p E ( p ) = 1. Set E ( p ) = 1.
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Unformatted text preview: Multiply by 180 – 2 p . Add 2 p to both sides. Divide both sides by 3. So, p = 60 is the point at which E ( p ) changes from elastic to inelastic, or visa versa. Through simple inspection, which we could have done in the first place, we can determine whether the value of the function E ( p ) is greater than 1 (elastic) or less than 1 (inelastic) at p = 65. So, demand is elastic at p = 65. (b) Since demand is elastic when p = 65, this means that for revenue to increase, price should decrease ....
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lecture28 - Multiply by 180 – 2 p Add 2 p to both sides...

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