Question

Danny "Dimes" Donahue is a neighborhood’s 9-year-old entrepreneur. His most recent venture is selling homemade brownies that he bakes himself. At a price of $1.50 each, he sells 100. At a price of $1.00 each, he sells 300.
a. Is demand elastic or inelastic over this price range? .
b. If demand had the same elasticity for a price decline from $1.00 to $0.50 as it does for the decline from $1.50 to $1.00, would cutting the price from $1.00 to $0.50 increase or decrease Danny’s total revenue? .

Answer 1

Answer:

a) Elastic

b)  total revenue is increased

Explanation:

a) The demand is elastic over the given range.

The demand is elastic because, with the variation in the price of the brownies the demand for the brownies varied too i.e the demand changes.

b) Now,

if the elasticity is same for the decline in price from $1.00 to $1.50 i.e 300

the revenue will increase as:

when the price was $1.00 the demand is 100

i.e

the total revenue = $1.00 × 100 = $100

now,

when the price decline to $0.50 the demand changes to 300

i.e

the total revenue = $0.50 × 300 = $150

hence,

the total revenue is increased.