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    Question about relationship between price elasticity and total revenue

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    1) Calculate total-revenue data from the demand schedule. Graph total revenue below your demand curve. Generalize about the relationship between price elasticity and total revenue.

    2)
    Product price Quantity Demanded
    $5 1
    $4 2
    $3 3
    $2 4
    $1 5

    Graph the accompanying demand data, and then use the midpoint formula for Ed to determine price elasticity of demand for each of the four possible $1 price changes. What can you conclude about the relationship between the slope of a curve and its elasticity? Explain in a nontechnical way why demand is elastic in the Northwest segment of the demand curve and inelastic in the southeast segment.

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    Solution Preview

    2) See the attached graph. Elasticities, top to bottom: 3; 1.4; .714; .333. Slope does not measure elasticity. This demand curve has a constant slope of -1 (= -1/1), but elasticity declines as we move down the curve. When the initial price is high ...

    Solution Summary

    Calculate total-revenue data from the demand schedule.

    $2.19