Suppose that ABC Beer Brewer faces a linear demand curve and that the current price for its beer is set at a point where the price elasticity is 1.60. If ABC Beer Brewer increases the product price:
A) the demand becomes more elastic and total revenue increases.
B) the demand becomes less elastic and total revenue increases.
C) the demand becomes less elastic and total revenue decreases.
D) the demand becomes more elastic and total revenue decreases.
E) the demand becomes more elastic and total revenue remains the same.
Suppose that ABC Beer Brewer faces a linear demand curve and that the current price for its beer is set at a point where the price elasticity is 1.60. If ABC Beer Brewer increases the product price:
A) the demand becomes more elastic and total revenue increases.
B) the demand becomes less elastic and total revenue increases.
C) the demand becomes less elastic and total revenue decreases.
D) the demand becomes more elastic and total revenue decreases.
E) the demand becomes more elastic and total revenue remains the same.
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In this question, we will determine the price elasticity of demand using both the coefficient of elasticity and the total revenue test.
Use the demand schedule in the table below to answer the following questions.
| Quantity Demand | Price |
| 10 | 200 |
| 20 | 150 |
| 30 | 100 |
| 40 | 50 |
| 50 | 25 |
a) Calculate the total revenue for each row in the demand schedule. indicate whether total revenue increases or decreases between each row int eh demand schedule. use the total revenue test to classify each price/quantity change as elastic, inelastic, or uni-elastic.
b) calculate the own price-elasticity coefficient for each row in the demand schedule. use the coefficients you calculate to classify each price/quantity change as elastic, inelastic, unit elastic.
in your answer it will be useful to recall that the midpoint formula for percentage change is:
%change midpoint = (final - initial) / ((finial + initial)/2)
and own price elasticity can be calculated by using the formula
Ed= (percentage change in quantity demand of product x) / (percentage change the in the price of product x)
