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26 . Elasticity and total revenue I
27 . Elasticityand total revenue II 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 $6 per trip. The blue line on the following graph shows the daily 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 daily revenue when the toll is $6 on the graph. Notice that when you click on the rectangle, the area is displayed. 10 Demand TR at $6 TR at $8 TOLL (Dollars per vehide) N 12 16 20 24 28 32 36 40 QUANTITY (Thousands of vehicles per day) An advisor has suggested that if you raise the toll to $8, the toll authority would bring in more revenue. To analyze this, use the green rectangle (triangle symbols) to shade the area representing the total daily revenue when the toll is $8 on the graph. When the toll is $6, total revenue is $ per day, but when the toll is $8, total revenue is $ per day. Based on your analysis, you can conclude that your advisor is right-; in suggesting that total revenue would rise if you increase the toll from $6 to $8, because the demand for trips across the bridge for piesBel Ween $6 and $8 is Inelastic26 . Elasticity and total revenue I The following graph shows the daily demand curve for bippitybops in Vancouver. Use the green rectangle (triangle symbols) to compute total revenue at various prices along the demand curve. Note: You will not be scored on any changes made to this graph. (?) Total Revenue PRICE (Dollars perbippitybop) Demand 3 8 12 15 18 21 24 27 30 33 36 QUANTITY (Bippitybops per day) On the following graph, use the green point (triangle symbol) to plot the daily total revenue when the market price is $50, $75, $100, $125, $150, $175, and $200 per bippitybop. (?)Demand 6 8 12 15 18 21 24 27 30 33 36 QUANTITY (Bippitybops per day) On the following graph, use the green point (triangle symbol) to plot the daily total revenue when the market price is $50, $75, $100, $125, $150, $175, and $200 per bippitybop. ? 2180 2040 Total Revenue 1900 1760 1620 TOTAL REVENUE (Dollars) 1480 340 1200 - 1080 920 0 25 50 75 100 125 150 175 200 225 250 275 300 PRICE (Dollars per bippitybop) 0 0.33 According to the midpoint method, the price elasticity of demand between points A and B on the initial graph is approximately Suppose the pricetagtjeitybops is currently $50 per bippitybop, shown as point B on thedejarouge Because the price elasticity of demand between points A and Akelastic a $25-per-bippitybop increase in price will lead toan increase in total revenue per day. unit elastic no change elastic In general, in order for a price decrease to cause a decrease in total revenue, demand must be inelastic
