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.

$2.49