Price Elasticity Calculations
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Demand for a managerial economics text is given by Q=20,000-300P. The book is initially priced at $30.00.
a. Compute the point price elasticity of demand at P=$30
b. If the objective is to increase total revenue, should the price be increased or decreased? Explain.
c. Compute the arc price elasticity for a price decrease from $30 to $20.
d. Compute the arc price elasticity of a price decrease from $20 to $15.
Write the demand equation for which the price elasticity of demand is zero for all prices.
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Solution Summary
The question determines the demand equation for which the price elasticity of demand is zero for all prices.
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Answer (a):
At P = 30,
Q = 20,000 - 300x30 = 11,000
Elasticity = -300x(30/11,000) = -0.8181
Answer (b):
The demand in inelastic. So to increase total revenue, the ...
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