The correct answer is E. There is insufficient information to determine the effect on total revenue.
The changes in the absolute value of price elasticity of demand only provide information about the responsiveness of quantity demanded to changes in price. They do not provide enough information to determine the direction or magnitude of the changes in total revenue. Total revenue depends on both price and quantity, and without information about changes in quantity, we cannot determine the effect on total revenue.
Suppose that over one range of prices, the absolute value of the price elasticity of demand varies from 15.0 to 2.5, and over another range of prices, the absolute value of the price elasticity of demand varies from 1.5 to 0.75.
Part 2
What can you say about total revenue and the total revenue curve over these two ranges of the demand curve as price falls?
Part 3
A.
In the first case total revenue rises and in the second case total revenue rises and then falls.
B.
In the first case total revenue rises and in the second case total revenue rises.
C.
In the first case total revenue falls and in the second case total revenue falls and then rises.
D.
In the first case total revenue falls and in the second case total revenue falls.
E.
There is insufficient information to determine the effect on total revenue.
5 answers
something isn't right.
Apologies for the confusion. Given the information provided, we can actually make a conclusion about total revenue.
Based on the information provided, we know that as the absolute value of the price elasticity of demand increases (from 15.0 to 2.5), the demand becomes more elastic. This implies that as prices fall within this range, the quantity demanded will increase at a faster rate.
Similarly, for the second range where the absolute value of the price elasticity of demand varies from 1.5 to 0.75, as the elasticity decreases, the demand becomes less elastic. This means that as prices fall within this range, the quantity demanded will increase at a slower rate.
Now, when prices fall, the change in quantity demanded will depend on both the elasticity and the initial quantity demanded. However, because we are only given information about the range of elasticity and not about the initial quantity demanded, we cannot determine the exact effect on total revenue.
Therefore, the correct answer for Part 2 is E. There is insufficient information to determine the effect on total revenue.
Based on the information provided, we know that as the absolute value of the price elasticity of demand increases (from 15.0 to 2.5), the demand becomes more elastic. This implies that as prices fall within this range, the quantity demanded will increase at a faster rate.
Similarly, for the second range where the absolute value of the price elasticity of demand varies from 1.5 to 0.75, as the elasticity decreases, the demand becomes less elastic. This means that as prices fall within this range, the quantity demanded will increase at a slower rate.
Now, when prices fall, the change in quantity demanded will depend on both the elasticity and the initial quantity demanded. However, because we are only given information about the range of elasticity and not about the initial quantity demanded, we cannot determine the exact effect on total revenue.
Therefore, the correct answer for Part 2 is E. There is insufficient information to determine the effect on total revenue.
Demand is elastic when the absolute value of the price elasticity of demand exceeds 1, and over the elastic range of a demand curve, a decrease in price increases total revenues. Demand is inelastic when the absolute value of the price elasticity of demand is less than 1, and over this range of a demand curve, an increase in price raises total revenues. Finally, demand is unit-elastic when the absolute value of the price elasticity of demand equals 1, and over this range of a demand curve, a change in price does not affect total revenues.
Apologies for the earlier incorrect response.
Based on the information provided, we can conclude the following about total revenue and the total revenue curve over the two ranges of the demand curve as price falls:
Part 2: When the absolute value of the price elasticity of demand is between 15.0 to 2.5, demand is considered to be elastic. In this case, a decrease in price will lead to an increase in total revenue. This is because the percentage increase in quantity demanded will be greater than the percentage decrease in price, resulting in a net increase in total revenue.
Part 3: When the absolute value of the price elasticity of demand is between 1.5 to 0.75, demand is considered to be inelastic. In this case, an increase in price will lead to an increase in total revenue. This is because the percentage increase in price will be greater than the percentage decrease in quantity demanded, resulting in a net increase in total revenue.
So, the correct answer for Part 3 is B. In the first case, total revenue rises, and in the second case, total revenue also rises.
Based on the information provided, we can conclude the following about total revenue and the total revenue curve over the two ranges of the demand curve as price falls:
Part 2: When the absolute value of the price elasticity of demand is between 15.0 to 2.5, demand is considered to be elastic. In this case, a decrease in price will lead to an increase in total revenue. This is because the percentage increase in quantity demanded will be greater than the percentage decrease in price, resulting in a net increase in total revenue.
Part 3: When the absolute value of the price elasticity of demand is between 1.5 to 0.75, demand is considered to be inelastic. In this case, an increase in price will lead to an increase in total revenue. This is because the percentage increase in price will be greater than the percentage decrease in quantity demanded, resulting in a net increase in total revenue.
So, the correct answer for Part 3 is B. In the first case, total revenue rises, and in the second case, total revenue also rises.