Question
Clearly label all graphical elements and changes in your graph . 1. Suppose that the demand for pizza is elastic , the initial market equilibrium
Clearly label all graphical elements and changes in your graph.
1. Suppose that the demand for pizza is elastic, the initial market equilibrium price of pizza, P1*, is $18 (P1* = $18), and the initial market equilibrium quantity is Q1*. Also, suppose that pizza demand is unit elastic at $10; i.e., Ed = 1 at $10, which provides a point of reference for your demand curve. In the graph below, illustrate and explain the effect of an decrease in the price of cheese on the total revenue of pizza producers. Justify your conclusion by showing graphically and labeling clearly and completely the effects on overall total revenue caused by (i) the change in total revenue caused by the change in the equilibrium price of pizza, and, (ii) the change in total revenue caused by the change in the equilibrium quantity of pizza. Assume that cheese is an input of pizza.
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