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14209an4.11-14 - Example 3 If E p = 2 5 and price is...

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c Kendra Kilmer February 27, 2009 Section 4.7 - Elasticity of Demand Example 1: A broker is trying to sell you two stocks: Biotech and Comstat. The broker esti- mates that Biotech’s earnings will increase $2 per year over the next several years, while Comstat’s earnings will increase only $1 per year. Which stock should you purchase? Definition: Relative and Percentage Rates of Change The relative rate of change of a function f ( x ) is The percentage rate of change is Example 2: If Biotech costs $100 per share and Comstat costs $25 per share, what are their relative and percentage rates of change? 11
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c Kendra Kilmer February 27, 2009 Elasticity of Demand: If price and demand are related by x = f ( p ) , then the elasticity of demand is given by What does E ( p ) tell me? 12
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c Kendra Kilmer February 27, 2009 Summary:
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Unformatted text preview: Example 3: If E ( p ) = 2 . 5 and price is decreased by 2%, what happens to demand? Does the revenue increase or decrease? 13 c ± Kendra Kilmer February 27, 2009 Example 4: Given that x = f ( p ) = 1875-p 2 , determine whether demand is elastic, inelastic, or has unit elasticity at the indicated values of p . a) p = 15 b) p = 25 c) p = 40 Example 5: The price-demand equation for home-delivered 12-inch pizzas is p = 16 . 8-. 002 x where x is the number of pizzas delivered weekly. The current price of one pizza is $8. In order to generate additional revenue from the sale of 12-inch pizzas, would you recommend a price increase or a price decrease? Section 4.7 Homework Problems: 13-21(odd),25,29,41,43,45 and supplemental problems 14...
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