Question : 41) Explain the relationship between price elasticity of demand and : 1245219

 

41) Explain the relationship between price elasticity of demand and total revenue.

 

42) You are the manager of a theater. At present the theater charges the same admission price of $8 to all customers, regardless of age. You propose a two-tier pricing scheme: $5 for children under the age of 12 and $10 for adults. You tell your supervisor that your proposal is likely to increase revenues. What must be true about the price elasticity of demand if your proposal is to achieve its goal of raising revenue? Explain your answer.

 

43) Suppose that at a price of $55, 100 units were sold while at a price of $33, 153 units were sold. Without calculating the price elasticity value, can you determine whether demand is elastic, unit-elastic, or inelastic? Explain your answer.

 

44) The Mass Rapid Transit (MRT) System in Hong Kong has been running significant losses. Transport Ministry officials have argued over whether to raise fares to combat the losses. One argument against a fare increase is that it will aggravate traffic congestion on the streets during peak commuter hours. Suppose that the current fare is $4 and the government is considering raising it to $6. Officials estimate that this reduces the number of rides purchased from 10,000 to 8,000 per day.

 

a.What is the estimated elasticity of demand for MRT rides?

b.What does this elasticity of demand suggest to you about what will happen to total revenue earned by the transit system?

c.Last year, the MRT system incurred a loss of $50,000 per day. Do you think the fare increase will resolve the deficit problem as well as Ministry officials anticipate? Explain.

 

45) Ali’s Gyros operates near a college campus. Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut. He estimates that he would be able to sell 200 gyros per day at $3.50 each.

 

a.Calculate the price elasticity of demand using the midpoint formula.

b.Calculate the change in revenue as a result of the price cut.

 

 

46) Suppose the governor of California has proposed increasing toll rates on California’s toll roads, and has presented two possible scenarios to implement these increases. Following are projected data for the two scenarios for the California toll roads:

 

Scenario 1: Toll rate in 2012: $10.00. Toll rate in 2016: $22.50

For every 100 cars using the toll roads in 2012, only 81.6 cars will use the toll roads in 2016.

 

Scenario 2:Toll rate in 2012: $10.00. Toll rate in 2016: $17.50

For every 100 cars using the toll roads in 2012, only 96.2 cars will use the toll roads in 2016.

 

a. Using the midpoint formula, calculate the price elasticity of demand for Scenario 1 and Scenario 2.

 

b. Assume 10,000 cars use California toll roads every day in 2012. What would be the daily total revenue received for each scenario in 2012 and in 2016?

 

c. Is demand under Scenario 1 and under Scenario 2 price elastic, inelastic, or unit elastic. Briefly explain.

 

(For above questions, assume that nothing other than the toll change occurs during the time frame listed that would affect consumer demand.)

 

 

 

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