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Point and Arc Elasticities

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The demand function for a cola-type soft drink in general is Q = 20 - 2P, where Q stands for quantity and P stands for price.
a. Calculate point elasticities at prices of 5 and 9. Is the demand curve elastic or inelastic at these points?
b. Calculate arc elasticity at the interval between P = 5 and P = 6.
c. At which price would a change in price and quantity result in approximately no change in total revenue? Why?

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Solution Summary

Point and Arc Elasticities are calculated.

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a) Point elasticity = dQ/dP*P1/Q1
dQ/dP = -2
At price P=5, we have P1=5 and Q1=20-2*5=10
Point elasticity = -2*5/10=-1 at P=5, the demand is unit elastic i.e. ...

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