A sporting goods store has estimated the demand curve for a popular brand of running shoes as a function of price. Use the diagram to answer the questions that follow.

a.   Calculate demand elasticity using the midpoint formula between points A and B, between points C and D, and between points E and F.

b.   If the store currently charges a price of $50, then increases that price to $60, what happens to total revenue from shoe sales (calculate P × Q before and after the price change)? Repeat the exercise for initial prices being decreased to $40 and $20, respectively.

c.   Explain why the answers to a. can be used to predict the answers to b.

 

Posted Date: 2/22/2013 7:43:54 AM | Location : United States

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