Problem: Elasticity, Total Revenue and Marginal Revenue
For Each of the following cases, what is the expected impact on the total revenue of the firm? Explain your reasoning
(a) Price elasticity of demand is known to be 0:5 and the firm raises price by 10%.
(b) Price elasticity of demand is known to be 2:5 and the firm lowers price by 5%.
(c) Price elasticity of demand is known to be 1:0 and the firm raises price by 1%.
Suppose the demand equation for good x was estimated as
QxD = 500 - 2Px:
(a) What is the price at which total revenue is maximized and what is the value of the total revenue at this point. Illustrate graphically.
(b) Identify the elastic and the inelastic ranges on the demand curve.
Problem : Effect of changing supply on total revenue (4 points)
Farm stories for July 26th, 2007. Written by Jim Birchard, Bayshore Broadcasting Corp. The largest winter wheat crop ever produced in Western Canada is set to begin harvesting this week. The Canadian Wheat Board says the 1.45 million acres seeded to the crop will yield record production. Winter-wheat yields are on track to match or surpass last yearís record-setting yield results.
Based on the above excerpt, would you expect the income of the wheat farmers to increase or decrease? Explain with a demand-supply diagram.