Question

The weekly sales of Honolulu Red Oranges is given by q = 990 − 22p. Calculate the price elasticity of demand when the price is $30 per orange (yes, $30 per orange†).(???)Interpret your answer.The demand is going (up of down) by (???) % per 1% increase in price at that price level.Also, calculate the price that gives a maximum weekly revenue.$ (???)Find this maximum revenue.$ (???)

Answer 1

Answer:

E = -2. The demand is going down by 2% per 1% increase in price at that price level.

The price that gives a maximum revenue is $22.5. The maximum revenue is $9112.5

Step-by-step explanation:

The overall demand formula: Q = aP + b

Q = 990 - 22P

Demand elasticity:

At P = $30, the Q = 990 - 22×30 = 330. a = $\frac{dQ}{dP}$ = -22

The formula for demand elasticity: E = $\frac{dQ}{dP}$×$\frac{P}{Q}$

Demand elasticity at $30: E = -22 × $\frac{30}{330}$ = -2

So, The demand will be going down by 2% if 1% increase in price.

Revenue:

R = P×Q = P×(990 - 22P) = -22P² - 990P

R' = -44P - 990. The revenue is maximum when R' = 0

⇔0 = -44P - 990 ⇔ P = $22.5

At the P = $22.5, the Q = 990 - 22×22.5 = 495.

The maximum revenue = $22.5×495 = $11,137.5