MicroEconomics--Chapter 20 Problems Demand Schedule for automobiles Price of aut
ID: 1108235 • Letter: M
Question
MicroEconomics--Chapter 20 Problems Demand Schedule for automobiles Price of auto Number of new autos (dollars per auto) (millions per year) $25,000 10 $22,000 15 1) In the above table, what is the total revenue from automobile sales at a price of $22,000 per auto? 2) What is the value of the price elasticity of demand which can be calculated from the above information? 3) Assume that the price elasticity of demand for U.S. Frisbee Co. Frisbees is -.6. If the company increases the price of each frisbee from $6 to $8, what will happen to the number of frisbees sold?
Explanation / Answer
1) TR = Price x Quantity = 22000 x 15 = $ 330,000
2) Price Ed = % change in quantity demanded / % change in price
= (P1 + P2)/(Q1 + Q2) x (Q2 - Q1)/(P2 - P1) = 47000/25 x 5/(-3000) = - 47/5 = - 9.4
3) Ed = % change in quantity demanded / % change in price
- 0.6 = % change in quantity demanded / [{(8 - 6)/6} x 100]
- 0.6 = % change in quantity demanded / 33.3
% change in quantity demanded = - 0.6 x 33.33 = - 19.99% or - 20%
Number of frisbees sold decreases by 20%.