QUESTION 1

The demand curve for cherries Dcherries is given on the graph below. Suppose that the price of cherries was initially $2.50 per pound and then, increased to $3 per pound.

a) Use the midpoint formula to calculate the percentage change in the price of cherries from $2.50 to $3.

b) Use the midpoint formula to calculate the percentage change in the quantity of cherries demanded as a result of the change in the price from $2.50 to $3.

c) Use the midpoint formula to calculate the price elasticity of demand for cherries between the given two price levels. Is the demand for cherries elastic or inelastic between these two price levels?

d) The demand curve D2 on the graph is the demand curve for apricots. Is the demand for apricots more or less elastic than the demand for cherries between the same two prices (P = $2.50 and P = $3)?

e) Does the annual total revenue (TR) of cherry producers increase or decrease as a result of the increase in the price of cherries from $2.50 to $3 per pound?