. Elasticity and total revenue The following graph shows the daily demand curve for bikes in Detroit.
Use the green rectangle (triangle symbols) to compute total revenue at various prices along the demand curve.
Note: You will not be graded on any changes made to this graph.
Total Revenue
0
5
10
15
20
25
30
35
40
45
50
55
60
300
275
250
225
200
175
150
125
100
75
50
25
0
PRICE (Dollars per bike)
QUANTITY (Bikes)
Demand
A
B
On the following graph, use the green point (triangle symbol) to plot the annual total revenue when the market price is $50, $75, $100, $125, $150, $175, and $200 per bike.
Total Revenue
0
25
50
75
100
125
150
175
200
225
250
275
300
5300
4900
4500
4100
3700
3300
2900
2500
2100
1700
TOTAL REVENUE (Dollars)
PRICE (Dollars per bike)
50, 2937.5
According to the midpoint method, the price elasticity of demand between points A and B is approximately0.6 .
Suppose the price of bikes is currently $100 per bike, shown as point B on the initial graph. Because the demand between points A and B isinelastic , a $25-per-bike increase in price will lead toa decrease in total revenue per day.
In general, in order for a price decrease to cause a decrease in total revenue, demand must beinelastic .
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