Answer to Question #165447 in Microeconomics for Benedictus

Question

The table below provides the demand schedule for good X. Use the information provided to 

complete the table and answer the questions that follow. 

Price (GH¢). Quantity demanded(units)

20 24

40 20

60 16

80 12

100 8

120 4

A.Over what range of price is demand inelastic? Explain your answer.

B. Over what range of price is demand elastic? Explain your answer.

C. Should the firm reduce or increase price to maximise total revenue when demand is 

inelastic? Explain your answer.

D. Should the firm reduce or increase price to maximise total revenue when demand is 

elastic? Explain your answer.

Answer 1

Answer to Task 165447

A. 20 to 40

40 to 60

60 to 80

80 to 100

When we calculate the price elasticity of demand for example between the range 20 to 40

Price elasticity of demand = (%change in quantity) divided by (%change in price)

$\%change\; in\; quantity\; =(20$ %change in quantity=$(20-24)/24 ×100=-50/3$

%change in price = $(40-20)/20×100=100$

Therefore,

price elasticity of demand will be;

$=(-50/3)/100=-1/6$

This shows that demand is inelastic since %change in quantity is less than % change in price. Working the other ranges above will give the same idea.

B. 100 to 120

Calculation;

Price elasticity of demand = (%change in quantity) divided by (%change in price)

%change in quantity = $(4-8)/8 ×100=-50$

%change in price=$(120-100)/100×100=20$

Price elasticity of demand will be;

$=-50/20=-5/2$

Ignoring the negative sign,this shows that the %change of quantity is more then %change of price. Hence demand is elastic in this range.

C.They should increase the price. To archive maximum total revenue when demand is inelastic, the price percentage should be increased leading to a small decrease in quantity demanded.

D. They should reduce the price.

If there is an elastic demand,the firm should reduce the price so that the percentage drop of price will increase the quantity sold in a larger percentage maximizing the total revenue.