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Unformatted text preview: you set p=0 and then set q=o. When p=0, then PED is perfectly inelastic i.e. 0, and when q = o then PED is perfectly elastic i.e. ∞ 4. a. R new = (p + ∆ p) (q + ∆ q) = pq + p ∆ q + q ∆ p + ∆ p ∆ q We can essentially ignore the last term here ( ∆ p ∆ q) as it is two small numbers that are multiplied together, which gives an incredibly small and insignificant number. This also makes the following calculations much easier! b. ∆ R = R new – R = (pq + p ∆ q + q ∆ p) – pq = p ∆ q + q ∆ p c. TO calculate the rate of change in revenue when price changes, you need to divide the formula in part 4b by ∆ p, which gives p ∆ q/ ∆ p + q...
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This note was uploaded on 02/08/2012 for the course ECO 51844 taught by Professor Sabet during the Spring '11 term at FIU.
- Spring '11