Microeconomica

Fill in the blanks in the table below by computing the elasticity values.

Price

Demand

Total Revenue

Percent change in price

Percent change in quantity

Elasticity

0

14

–

–

–

1

12

2

10

3

8

4

6

5

4

6

2

7

0

Exercise 2

1.) Suppose that the monthly demand for Alaska Club memberships is QD = 10000 – 10P.

a.) Using the formula for elasticity we have described in class, suppose that the initial

price is $400 dollars, calculate the price elasticity of demand between a price of $500 and

$400 (P in the equation above is equal to price). Explain the meaning of your answer

using the concept of elasticity.

b.) Suppose that the prevailing price is $400. Would you recommend an increase in the

price to $500, why or why not? Explain using the concept of elasticity. If not, describe

the conditions under which you could make such a recommendation.

c.) Calculate the total revenue first from the sale of memberships at a price of $400 and

then at a price of $500. Do you reach a different conclusion regarding the effect of the

increase in price?

d.) Under what condition would you unambiguously recommend a firm to increase their

price?

Microeconomica

Fill in the blanks in the table below by computing the elasticity values.

Price

Demand

Total Revenue

Percent change in price

Percent change in quantity

Elasticity

0

14

–

–

–

1

12

2

10

3

8

4

6

5

4

6

2

7

0

Exercise 2

1.) Suppose that the monthly demand for Alaska Club memberships is QD = 10000 – 10P.

a.) Using the formula for elasticity we have described in class, suppose that the initial

price is $400 dollars, calculate the price elasticity of demand between a price of $500 and

$400 (P in the equation above is equal to price). Explain the meaning of your answer

using the concept of elasticity.

b.) Suppose that the prevailing price is $400. Would you recommend an increase in the

price to $500, why or why not? Explain using the concept of elasticity. If not, describe

the conditions under which you could make such a recommendation.

c.) Calculate the total revenue first from the sale of memberships at a price of $400 and

then at a price of $500. Do you reach a different conclusion regarding the effect of the

increase in price?

d.) Under what condition would you unambiguously recommend a firm to increase their

price?

Microeconomica

Fill in the blanks in the table below by computing the elasticity values.

Price

Demand

Total Revenue

Percent change in price

Percent change in quantity

Elasticity

0

14

–

–

–

1

12

2

10

3

8

4

6

5

4

6

2

7

0

Exercise 2

1.) Suppose that the monthly demand for Alaska Club memberships is QD = 10000 – 10P.

a.) Using the formula for elasticity we have described in class, suppose that the initial

price is $400 dollars, calculate the price elasticity of demand between a price of $500 and

$400 (P in the equation above is equal to price). Explain the meaning of your answer

using the concept of elasticity.

b.) Suppose that the prevailing price is $400. Would you recommend an increase in the

price to $500, why or why not? Explain using the concept of elasticity. If not, describe

the conditions under which you could make such a recommendation.

c.) Calculate the total revenue first from the sale of memberships at a price of $400 and

then at a price of $500. Do you reach a different conclusion regarding the effect of the

increase in price?

d.) Under what condition would you unambiguously recommend a firm to increase their

price?