Calculate the price elasticity of demand

Reference no: EM13122359

More people start consuming mangoes because of its newly discovered health benefits. Assume in this case that the supply for mangoes remains unchanged.

Question 2

Consider the information in the figure below and answer the questions that follow. The slope of the demand curve (AP/AQ) Is 0.4.

800_Calculate the price elasticity of demand.png

1 For each of points 'a', 'b', 'd' and 'e' on the graph, calculate the price elasticity of demand (PED) and state the nature of elasticity (e.g. perfectly inelastic) at that point.

2 At which of the specified prices will total revenue from sales be maximised? Motivate your answer briefly.

3 Suppose the price is equal to R10. Should the producer increase or decrease the price in order to maximise revenue? Give a reason for your answer.

Reference no: EM13122359

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