Total Revenue and Determinants

Total Revenue and Determinants - Total Revenue and...

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Unformatted text preview: Total Revenue and Determinants 23 Predicting Total Revenue Responses to Price Changes !"#$%&'%()*+,'-.*/#0#(1#*/#23,(2#2*',*!"%&#*45-()#2 Knowledge of the price elasticity of demand is 6(,7.#$)#*,8*'5#*3"%&#*#.-2'%&%'9*,8*$#:-($*%2*#;'"#:#.9 e%:3,"'-('* important for predicting how total revenue %( xtremely 8,"* 3"#$%&'%()* 5,7* ','-.* "#0#(1#* &5-()#2* c"#23,(2#*',*3"%&#*&5-()#2< changes. hanges in response to price = ?.-2'%&*@?$*>*ABC **DE *** *ADE* A = BE > BE > > ADE****+/*8-..2 =DE***+/*"%2#2 F(%'*?.-2'%&*@?$*>*ADC *DE****A DE > ADE***=***DE > *GE****+/*(,*&5-()# *GE **+/*(,*&5-()# =DIBE**+/*"%2#2 ADIBE**+/*8-..2 H(#.-2'%&*@?$*>*ADIBC *DE*****A ***DIBE > **** ADE****= ***DIBE > Determinants of Price Elasticity of Demand 1. Availability and price of substitutes. The greater the availability of substitutes, the more elastic is demand. (Salt; Coca Cola) 2. Percent of Consumer's Budget The higher the fraction of the consumer's budget spent on the good, the greater is the elasticity of demand. 3. Time The longer the time period, the more elastic is the demand for the product. (Gasoline) © Bryan L. Boulier, 2010. All rights reserved. ...
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This note was uploaded on 02/17/2011 for the course ECON 101 taught by Professor Fon during the Spring '06 term at GWU.

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