At equilibrium
Hence
Therefore
Equilibrium price = 200 dollars
Equilibrium output level is,
Point elasticity of demand (Ed) is given by
Let’s assume that if the monthly fee changes from $100 (P0) to $200 (P1), number of business that need services falls from [1500-5(100)]=1000 (Qd0) to [1500-5(200)] = 500(Qd1).
Hence d
Ed= (1000-500)/(200-100)= 2.5
Hence elasticity is unitary elastic for it's greater than 1
Total Revenue at the equilibrium price is
(equilibrium output level x equilibrium Price )
Hence
(500x200) = $100000
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