HW#3 - Elasticity
Econ 201/202
Elasticity and Total Revenue
Here is the table for an individual’s demand curve
Quantity
Own-price elasticity Total Revenue
Price
Demanded
$10
1
$9
2
$8
3
$7
4
$6
5
$5
6
$4
7
$3
8
$2
9
$1
10
$0
11
a) What is the relationship between elasticity and total revenue? I.e., is elasticity
increasing/decreasing when total revenue is increasing? I.e., is elasticity increasing/decreasing
when total revenue is decreasing?
b) What is happening to elasticity when total revenue is at its maximum?
c) Does the magnitude of elasticity depend only on the slope of the demand curve? Why/why
not?
12
10
8
6
4
2
0
1
2
3
4
5
6
7
8
9
10 11
1. Calculate the slope of this demand curve
2. What does the magnitude (size) of the slope coefficient tell you?
3. Calculate the own-price elasticity at $9, $7, $5, $3
a. How does elasticity vary along this (a linear) demand curve?
4. Calculate the total revenue (price x quantity demanded) at $9, $7, $5, $3
a. How does total revenue vary with elasticity?
i. At what elasticity is TR maximized?
ii. Is elasticity increasing or decreasing as TR increases?
iii. Is elasticity increasing or decreasing as TR decreases?