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Calculating Arc and Point Elasticities

The Jaimison Company produces steel. Its demand curve is linear. Its current price and quantity are $237.50 and 1,050 tons, respectively. Management determines that if they lower the price to $200, the will sell 1,200 tons of steel.

a. Calculate the arc price elasticity between these two points on the demand curve.

b. Should management lower the price? Explain

C. Use the information in the problem to derive the equation for Jamison's demand curve equation (i.e., the "inverse" demand curve).

d. Find the price that maximizes total revenue. What is the elasticity of demand at this point? What is the total revenue?

e. Jamison's marginal costs are $100 per ton. Find Jamison's profit maximizing output and price.

Solution Preview

Please see the attached file for complete solution. Work done with the help of equation writer may not print here.

a. Calculate the arc price elasticity between these two points on the demand curve.

Arc Elasticity is given by

-negative sign indicates that demand has a negative slope

b. Should management lower the price? Explain

We are not given any information about ...

Solution Summary

Solution describes the steps to find point and arc elasticities. Demand function is derived from given information. Quantities for maximum profit and revenue are worked out using calculus.

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