An electronics retailing chain has established the monthly price (p) - demand (n d ) relationship

for an electronic game as

1000 - ()

They are trying to set a price level that will provide maximum revenue . They know that when

demand is elastic, a drop in price will result in higher overall revenues and that when demand is

inelastic, an increase in price will result in higher overall revenues. To complete the questions in

this task, you will have to use the elasticity definition.

E = -[(n/n) (p/p)]

converted into differential notation. ((n/p) = dn/dp)

a. determine the elasticity of demand at $20 and $80, classifying these price points as having

elastic or inelastic demand. What does this say about where the optimum price is in terms of

generating the maximum revenue? Explain. Also calculate the revenue at the $20 and $80 price

points.

K/U

b. approximate the demand curve as a linear function (tangent) at a price point of $50. Plot the

demand function and its linear approximation on the graphing calculator or graphing software.

What do you notice? Explain this by looking at the demand function.

COMM

c. use your linear approximation to determine the price point that will generate the maximum

revenue. (hint: think about the specific value of E, where you will not want to increase or

decrease the price to generate higher revenues.) What revenue is generated at this price point?

T/I

d. A second game has a price-demand relationship of... n d (p) = 1250/p-25

The price is currently set as $50. Should the company increase or decrease the price? Explain.