Price Elasticity of Demand and Total Revenue for Roma
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The Daily demand for "An annotated History of the banana," Roma's best selling book, is given by the equation: Q/day = 342 - 1.8 Price
1. Currently, Roma's Imperial Ministry of Trade & Tourism is selling this book at a price of $68.60 per copy.
Estimate the point price elasticity of demand for this book at it's current selling price. If Roma's Trade and Tourism officials want to increase total revenue from the sales of this book, do you recommend that its price be increased, decreased or be kept unchanged from its current level of $68.60 per copy?
Why?
2. Please calculate the price per unit at which the total revenue from the sales of the book would be maximized and also the number of copies per day that would be sold at that price.
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Solution Summary
This solution contains step-by-step calculations to determine the point price elasticity of demand at the current selling price and also the price per unit to maximize the sales of the book from the total revenue.
Solution Preview
1. Point price elasticity = dQ/dP* P1/Q1
We have Q = 342-1.8P
dQ/dP=-1.8
P1=68.60
Q1=342-1.8*P1=342-1.8*68.60=218.52
Point ...
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