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Elasticity and total revenue

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Fill in the missing amounts in the following table

Demand for Ben and Jerry's Ice Cream +10% -12% a.
Demand for Beer at San Francisco -20% b. -.5
49ers football games
Demand for Broadway theater tickets c. -15% -1.0
in New York
Supply of chickens +10% d. +1.2
Supply of beef cattle -15% -10% e.

Using the above table, defend answers to the following questions:

a. Would you recommend that Ben and Jerry's move forward with a plan to raise prices if the company's only goal is to increase revenues?

b. Would you recommend that beer stands cut prices to increase revenues at 49ers football games next year?

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Solution Preview

a. Price elasticity of demand=% change in quantity/% change in price=-12%/10%=-1.2
b. % change in quantity=Price elasticity of demand*%change in price=-0.5*(-20%)=10%
c. % change in price=% change in quantity/Price elasticity of demand=-15%/(-1)=15%
d. % change in quantity=Price ...

Solution Summary

Solution calculates the missing values and discusses the effect of price changes on total revenues.

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12 30 n.a n.a
11 40
10 50
9 60
8 70
7 80
6 90
5 100
4 110

a)Compute the associated arc elasticity, total revenue, and marginal revenue values.

b)On a separate graphs, plot the demand function, total revenue function, and marginal revenue function.

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