Price per unit Quantity demanded per period $3 80
$4 70
$5 60
$6 50
$7 40
$8 30
$9 20
$10 10

Between a price of $4 and $5, the price elasticity of demand is (round to one decimal point) and at that point the demand elasticity is . Between a price of $8 and $9, the price elasticity of demand is (round to one decimal point) and at that point the demand elasticity is . Revenue is maximized when the price is at $ and the demand elasticity equals .

Between a price of $4 and $5, the price elasticity of demand is -0.67 (round to one decimal point) and at that point the demand elasticity is inelastic. Between a price of $8 and $9, the price elasticity of demand is -2.67 (round to one decimal point) and at that point the demand elasticity is elastic. Revenue is maximized when the price is at $6 and the demand elasticity equals -1.

Explanation:

The price elasticity of demand can be calculated using the following formula:

Price elasticity of demand = Percentage in quantity demanded / Percentage change in price (1)

Therefore, we have:

a. Between a price of $4 and $5

Here, we have:

Percentage in quantity demanded = ((60 - 70) / 60) * 100 = -16.67%

Percentage in price = (($5 - $4) / $4) * 100 = 25%

Therefore, we have:

Price elasticity of demand = -16.67% / 25% = -0.67

Since the absolute value |0.67| is less than 1, the demand elasticity is inelastic at this point.

b. Between a price of $8 and $9

Here, we have:

Percentage in quantity demanded = ((20 - 30) / 30) * 100 = -33.33%

Percentage in price = (($9 - $8) / $8) * 100 = 12.50%

Therefore, we have:

Price elasticity of demand = -33.33% / 12.50% = -2.67

Since the absolute value |2.67| is greater than 1, the demand elasticity is elastic at this point.

c. Revenue is maximized when the price is at $ and the demand elasticity equals .

Note: See the attached excel file for the Computation of Marginal Revenue

Revenue is maximized when the Marginal Revenue is equal to zero. This occurs when the price is at $6 in the attached excel file (in bold red color).

Since price increased from $5 to $6, we have:

Percentage in quantity demanded = ((50 - 60) / 50) * 100 = -20%

Percentage in price = (($6 - $5) / $5) * 100 = 20%

Therefore, we have:

Price elasticity of demand = 20% / 20% = -1

Since the absolute value |1| is equal to 1, the demand elasticity is unitary at this point.

Conclusion

Between a price of $4 and $5, the price elasticity of demand is -0.67 (round to one decimal point) and at that point the demand elasticity is inelastic. Between a price of $8 and $9, the price elasticity of demand is -2.67 (round to one decimal point) and at that point the demand elasticity is elastic. Revenue is maximized when the price is at $6 and the demand elasticity equals -1.

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