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Chapter 4

# Chapter 4 - Chapter 4 Answers to Problems 1 For the demand...

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Chapter 4 Answers to Problems 1. For the demand curve shown, the slope is 1 so (1/slope) is also 1. The absolute value of the price elasticity of demand at any point on this demand curve is thus the ratio (P/Q) at that point. Point Elasticity A infinity B 3 C 1 D 1/3 E 0 3. Since the demand curve is a straight line, the price should be set at the midpoint of the demand curve in order to maximize total revenue. This means that that you should set the price at \$6 per visit. The elastic and inelastic regions of the demand curve are shown below. P (\$/visit) Q (visitors per day) 6 12 3 6 elastic region inelastic region 5. The more income a person has, the smaller a given expenditure will be as a proportion of her overall budget, and hence the less likely she will be to respond dramatically to a price change. Thus senior executives, the most highly paid of the three groups, should have the least price-elastic demand curves. Students, the least well paid, should have the most price-elastic demand curves.

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Chapter 4 - Chapter 4 Answers to Problems 1 For the demand...

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