ECON 1050 Chapter 13: Economics-1 (1) (dragged) 2

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salmoneagle674

17 Sep 2016

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If demand is inelastic, a fall in the price brings a decrease in total revenue. The rise in revenue from the increase in quantity sold is outweighed by the fall in revenue from the lower price per unit. As the price falls total revenue decreases. If demand is unit elastic a fall in price does not change total revenue. The rise in revenue from the greater quantity sold equals the fall in revenue from the lower price per unit. Total revenue is maximized when mr = 0. A single-price monopoly never produces an output at which demand is inelastic. If it did produce such an output, the firm could increase total revenue, decrease total cost, and increase economic profit by decreasing output. The monopoly faces the same types of technology constraints as the competitive firm, but the monopoly faces a different market constraint. The monopoly produces the profit-maximizing quantity, where mr = mc.

Related Questions

S 11) Suppose there is an increase in the cost of resources used in the production of good A. Then u total revenue must fall because the quantity bought and sold of A must fall. Bi total revenue will increase because the price of A must rise i f the total revenue from sales of A falls, we know the demand for A is elastic D) if the total revenue from sales of A rises, we know the demand for A is elastic. E) if the price of A rises, we know the demand for A is elastic.

38) A technological breakthrough lowers the cost of photocopiers. If the demand for photocopiers is price inelastic, we predict that photocopier sales will A) rise and total revenue will decrease. B) fall and total revenue will increase. C) rise and total revenue will increase. D) fall and total revenue will decrease. E) rise, but changes in total revenue will depend on elasticity of supply.

For each case, choose the condition that characterizes demand: elastic demand, inelastic demand, or unit-elastic demand.

a. Total revenue decreases when the price increases.

b. The additional revenue generated by an increase in quantity sold is exactly offset by revenue lost from the fall in price received per unit.

c. Total revenue falls when output increases.

d. Producers in an industry find they can increase their total revenues by coordinating a reduction in industry output.

e. As the price of margarine rises by 20%, a manufacturer of baked goods increases its quantity of butter demanded by 5%. Calculate the cross-price elasticity of demand between butter and margarine. Are butter and margarine substitutes or complements for this manufacturer?

f. After Malia's income increased from $12,000 to $18,000 a year, her purchases of album downloads increased from 10 to 40 downloads a year. Calculate Malia's income elasticity of demand for albums.

g. Expensive restaurant meals are income-elastic goods for most people, including Sanjay. Suppose his income falls by 10% this year. What can you predict about the change in Sanjay's consumption of expensive restaurant meals?

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ECON 1050 Chapter 13: Economics-1 (1) (dragged) 2

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