1. Total and Marginal Revenue

2. Total and Marginal Revenue

3. Quantity Demanded MR/Price -10 -5 0 5 10 0 2 4 6 8 10 12 Marginal Revenue Average Revenue Total Revenue 0 5 10 15 20 25 30 35 0 2 4 6 8 10 12 Quantity per period Total Revenue 15

7. Calculating Elasticities Pounds of X per month Slope:  Y = P 2 – P 1  X = Q 2 – Q 1 = 2 – 3 = -1 10 – 5 = 5 Ounces of X per month Slope:  Y = P 2 – P 1  X = Q 2 – Q 1 = 2 – 3 = -1 160 –80 = 80 P P 0 P 1 = 3 P 2 = 2 Q 1 = 5 Q 2 = 10 D Price per Pound Pounds of X per week P 1 = 3 P 2 = 2 Q 1 = 80 Q 2 = 160 D Price per Pound Ounces of X per week Q Q 0

8. Point Price Elasticity of Demand Point Definition Ratio of the percentage of change in quantity demanded to the percentage change in price. %  Q Ep = %  P

9. For  P approaching 0  Q/  P = dQ/dP Linear equation = dQ/dP = constant dQ/dP = a p Q d = B + a p P = B + dQ/dP P Point Price Elasticity of Demand

10. Point Price Elasticity of demand 0 1 2 3 4 5 6 7 0 100 200 300 400 500 600 700 Qx Px A F G H J B C Dx

12. Arc Price Elasticity of Demand E p = Q 2 - Q 1 P 2 - P 1 (Q 2 + Q 1 )/2 (P 2 + P 1 )/2

14. Calculate Elasticity

15. Total Marginal Elasticity

16. Marginal Revenue and Price Elasticity of Demand MR = d(PQ) = dQ*P + dP*Q dQ dQ dQ = P + QdP = P 1 + dP.Q dQ dQ P

17. Quantity Demanded MR/Price -10 -5 0 5 10 0 2 4 6 8 10 12 Marginal Revenue Elastic Ep < - 1 Unitary elastic Ep = - 1 Inelastic -1 < Ep < 0 Total Revenue 0 5 10 15 20 25 30 35 0 2 4 6 8 10 12 Quantity per period Total Revenue 15

19. Price Qty Demanded 0 Q P Price Qty Demanded 0 Q P D D Perfectly Inelastic Demand Perfectly Elastic Demand

21. Present Loss : $ 7.5 million Present fee per student : $3,000 Suggested increase : 25% Total number of students : 10000 Elasticity for enrollment at state universities is -1.3 with respect to tuition changes 1% increase in tuition = 1.3% decrease in enrollment Increase of 25% decline in enrollment by 32.5% 3000 * 10000 = $30,000,000 3750 * 6750 = $25,312,500 Problem

24. Income Elasticity of Demand Point Definition The responsiveness of demand to changes in income. Other factors held constant, income elasticity of a good is the percentage change in demand associated with a 1% change in income

25. Income Elasticity of Demand Arc Definition

26. Demand of automobiles as a function of income is Q = 50,000 + 5(I) Present Income = $10,000 Changed Income = $11,000 I 1 = $10,000, Q = 100,000 I 2 = $11,000, Q = 105,000 E I = 0.512

28. Cross-Price Elasticity of Demand Point Definition Responsiveness in the demand for commodity X to a change in the price of commodity Y. Other factors held constant, cross price elasticity of a good is the % change in demand for commodity X divided by the % change in the price of commodity Y

29. Cross-Price Elasticity of Demand Arc Definition Substitutes Complements