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Unformatted text preview: 25 30 40 50 Quantity (pizzas per hour) Price (dollars per pizza) 25.00 20.00 15.00 Elastic demand Unit elastic Inelastic demand 25 50 Maximum total revenue When demand is inelastic, a price incease will increase total revenue Quantity (pizzas per hour) Price Total Revenue 12.50 10.00 5.00 (billions of dollars) 0 350.00 312.50 300.00 250.00 200.00 150.00 100.00 50.00 When demand is elastic, price cut increases total revenue 0 25 50 Elasticity of Demand Elasticity and total revenue (TR = P Q) test When demand is Price causes inelastic ( < 1) unit elastic ( = 1) elastic ( > 1) TR no change TR TR Factors That Affect Price Elasticity of Demand Substitutes (necessities vs. luxuries) Habit Income, proportion, spent on the good Time e...
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This document was uploaded on 03/14/2014.

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