Tute04 - answer

Tute04 - answer - ECF1100: MICROECONOMICS Answers to...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECF1100: MICROECONOMICS Answers to tutorial 4 Chapter 4, Problem 1 For the demand curve shown, the slope is 1; therefore ( 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 Chapter 4, Problem 2 a. In the diagram below, I have measured quantity in 1,000 units a day to simply calculation. This changes elasticity calculation as well. b Price elasticity of demand is calculated as ( P/Q ) ( 1/slope ). When P = 3, Q = 9 and ( 1/slope ) is 3. So elasticity = (3/9)3 = 1. c If the price increases from $3.00 to $4.00, revenue will fall from $27,000 to $24,000. (Note: between $3 and $4, demand is elastic. Therefore an increase in price will decrease revenue.) d Using the same formula as in part b, elasticity = (2/12)3 = 0.5. e If the price increases from $2.00 to $3.00, revenue will rise from $24,000 to $27, 000. (Note: demand is inelastic so the rise in price will increase revenue.) 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/30/2011 for the course ECON 101 taught by Professor Shen during the Three '11 term at Monash.

Page1 / 2

Tute04 - answer - ECF1100: MICROECONOMICS Answers to...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online