Economy, asked by zohasaleemahmed2001, 11 months ago

Suppose that there are two products, A and B. Product A currently sells for Rs. 5 and demand at
this price is 1700 units. If the price fell to Rs. 4.60 demand would increase to 2000 units. Product
B currently sells for Rs.8 and demand at this price is 9500 units. If the price fell to 7.50 demand
would increase to 10000 units. In each these cases calculate
a) Price elasticity of demand
b) The effect on total revenue

Answers

Answered by amitnrw

Given : Product A currently sells for Rs. 5 and demand at

this price is 1700 units. If the price fell to Rs. 4.60 demand would increase to 2000 units.

To find : a) Price elasticity of demand

b) The effect on total revenue

Solution:

Price = 5

Demand = 1700

Price = 4.6

Demand = 2000

Change in Demand = dQ/Q = (2000 - 1700)/1700 = 300/1700 = 3/17

Change in Price = dP/P ( 4.6 - 5)/5 = -0.4/5 = -0.08

price elasticity of demand = (dQ/Q )/ dP/P =

Price elasticity of demand = (3/17) /(-0.08) = - 2.2

Effect on revenue = 2000 * 4.6 - 1700 * 5 = 9200 - 8500 = Rs 700

Revenue increased by Rs 700

Price = 8

Demand =9500

Price = 7.5

Demand = 10000

dQ/Q = 500/9500 = 1/19

dP/P = -0.5/8 = -0.0625

Price elasticity of demand = -0.842

Effect on revenue = 10000 * 7.5 - 9500 * 8 = 75000 - 76000 = Rs -1000

Revenue decreased by Rs 1000

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Answered by xXMarziyaXx

Given :

Product A currently sells for Rs. 5 and demand at