p is in dollars and q is the number of units. Find the elasticity of the demand function at , and use it to determine how a price increase will affect total revenue.
A)Since the demand is elastic, an increase in price will decrease the total revenue.
B)Since the demand is elastic, an increase in price will increase the total revenue.
C)Since the demand is inelastic, an increase in price will decrease the total revenue.
D)Since the demand is inelastic, an increase in price will increase the total revenue.
E)No change in revenue.

Question

p is in dollars and q is the number of units. Find the elasticity of the demand function  at  , and use it to determine how a price increase will affect total revenue. ​
A)Since the demand is elastic, an increase in price will decrease the total revenue. 
B)Since the demand is elastic, an increase in price will increase the total revenue. 
C)Since the demand is inelastic, an increase in price will decrease the total revenue. 
D)Since the demand is inelastic, an increase in price will increase the total revenue. 
E)No change in revenue.

Quizplus · Accepted Answer

To find the elasticity of the demand function, we need to use the formula:

E = (% Change in Quantity Demanded)/(% Change in Price)

Given that at p = 5, q = 10 and at p = 7, q = 8, we can calculate the percentage changes in quantity and price:

% Change in Quantity Demanded = [(8-10)/((8+10)/2)] x 100% = -20%
% Change in Price = [(7-5)/((7+5)/2)] x 100% = 33.33%

Substituting these values in the formula for elasticity, we get:

E = (-20%/33.33%) = -0.6

Since the elasticity is greater than 1, we can say that the demand is elastic. This means that an increase in price will lead to a greater percentage decrease in quantity demanded, which will in turn lead to a decrease in total revenue. Hence, the correct answer is A.

P Is in Dollars and Q Is the Number of Units