2. Total revenue and elasticity

Imagine that you run the toll authority for a city bridge. You must charge all of your customers the exact same toll. Initially, you have set the price at $2 per trip. The blue line on the following graph shows the weekly demand curve for trips across the city bridge.

On the following graph, use the purple rectangle (diamond symbols) to shade the area representing the total weekly revenue when the toll is $2 on the graph.

Note: Select and drag shaded regions from the palette to the graph. To resize the shaded region, select one of the points and move to the desired position. To see the area of the rectangle, select the shaded region.

TR at $2TR at $302468101214161820109876543210TOLL (Dollars per vehicle)QUANTITY (Thousands of vehicles per week)Demand

An advisor has suggested that if you raise the toll to $3, the toll authority would bring in more revenue. To analyze this, use the green rectangle (triangle symbols) to shade the area representing the total weekly revenue when the toll is $3 on the previous graph.

When the toll is $2, total revenue is ____per week, but when the toll is $3, total revenue is ___per week.

Based on your analysis, you can conclude that your advisor is in suggesting that total revenue would rise if you increase _____the toll from $2 to $3, because the demand for trips across the bridge for prices between $2 and $3 is____.