Assignment No Essay example

Assignment No. 2
Student: Zeljka Knezic
Student ID: n01035052
Course: Microeconomics, BECN-150-0NA
Instructor: Michael Lindsay
Due Date: March 09, 2015
Question 1
Price
Quantity Demand
Total Revenue
$8
0
0
7
2
14
6
4
24
5
6
30
4
8
32
3
10
30
2
12
24
1
14
14
0
16
0

$4 price provides the maximum revenue.

Observe the nature of the two graphs. Does the revenue always increase when the price increases? If the price is in the elastic part of the curve how should you change the price to increase revenue?

Question 2

How would the following changes in price affect total revenue? That is, would total revenue increase, decline, or remain unchanged? (2 Mark for each)
a. Price falls and demand is inelastic.
Total revenue will decrease
b. Price rises and demand is elastic.
Total revenue will decrease
c. Price rises and supply is elastic.
Total revenue will increase
d. Price rises and demand is inelastic.
Total revenue will increase.
e. Price falls and demand is of unit elasticity.
Total revenue will remain unchanged.

Question 3

1. What is your current total revenue for both groups?
Total revenue from adult’s tickets is $250 and from children’s tickets is $100. Total revenue from both groups is $350.
2. The elasticity of demand is more elastic in which market?
The children’s tickets demand is more elastic.
3. The elasticity of demand is more elastic in which market?
Adult’s market has less elastic demand.
4. What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this elastic or inelastic? (Use the mid-point formula)
E= {(10/ [(50+60)/2])/ (3/ [(5+2)/2])}
E= {(10/ [110/2])/ (3/ [7/2])}
E= {(10/55)/ (3/3.5)}
E= {0.18/0.86}
E=0.21
Inelastic, because E<1.
5. What is the elasticity of demand between $5 and $3 in the children's market? Is this elastic or inelastic? (Use the mid-point formula)
E= {(20/ [(20+40)/2])/ (2/ [(5+3)/2])}
E= {(20/ [60/2])/ (2/ [8/2])}
E= {(20/30)/ (2/4)}
E= {0.67/0.5}
E=1.34
Elastic, because E>1.
6. Given the graphs and what your friend knows about economics, he recommends you increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3. How much could you increase total revenue if you take his advice?
Total revenue in adult’s market would be $320, and in children’s market $120. Total revenue for both groups would be $440, which means total revenue would increase by $90.

Question 4

Quantity Total Price demanded revenue Midpoint $6 1 $6 3.7 5 2 10 1.8 4 3 12 1.0 3 4 12 0.55 2 5 10 0.27 1 6 6

E= {(1/ [(1+2)/2])/ (1/ [(6+5)/2])}
E= {(1/ [3/2])/ (1/ [11/2])}
E= {(1/1.5)/ (1/5.5)}
E={0.67/0.18}
E=3.7

E= {(1/ [(2+3)/2])/ (1/ [(5+4)/2])}
E= {(1/ [5/2])/ (1/ [9/2])}
E= {(1/2.5)/ (1/4.5)}
E={0.4/0.22}
E=1.8

E= {(1/ [(3+4)/2])/ (1/ [(4+3)/2])}
E= {(1/ [7/2])/ (1/ [7/2])}
E= {(1/3.5)/ (1/3.5)}
E={0.28/0.28}
E=1.0
E= {(1/ [(4+5)/2])/ (1/ [(3+2)/2])}
E= {(1/ [9/2])/ (1/ [5/2])}
E= {(1/4.5)/ (1/2.5)}
E={0.22/0.4}
E=0.55

E= {(1/ [(5+6)/2])/ (1/ [(2+1)/2])}
E= {(1/ [11/2])/ (1/ [3/2])}
E= {(1/5.5)/ (1/1.5)}
E={0.18/0.67}
E=0.27

Does a straight-line sloping down demand curve have a constant elasticity?
No.

A=Elastic
B=Unit Elastic
C=Inelastic

Question 5
Four determinants of demand:
1. Substitutability – The price elasticity of demand is greater if there is a larger number of available substitute goods (candy bar demand is elastic because

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