Q 1. Assume that, for a particular demand curve, when price rises from $50 to $60, total revenue falls from $8,750 to $7800.
a. Based on this information, what is the quantity demanded at each price.
b. Without calculating the coefficient of elasticity, is demand over this range elastic or inelastic? How do you know?
Q2. Provide a simple definition of the price elasticity of demand and explain why knowing the price elasticity for her product is useful to the firm''s manager.
Q3. A car dealer wants to get rid of the stock of last year''s model. Assume that the dealer knows from past experience that the price elasticity of demand for cars is unitary (= 1). If the price of the cars is currently $20,000 and the dealer wants to increase the quantity demanded from 30 units to 50 units, what must the new price be if the dealer is to sell the 20 additional cars? Explain and Show your calculations.
Q4. Assume an analyst has been hired to estimate the price elasticity of demand for hamburger (which sells for about $2.30 per pound) and filet mignon (which sells for about $20 per pound), respectively. Considering the different determinants of the price elasticity of demand, which item on the menu would you expect to have larger price elasticity of demand? Explain.