Please answer all questions QUESTION 5 Figure 5-4 t Price B. Quaxtip Refer to Fi

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Please answer all questions

QUESTION 5 Figure 5-4 t Price B. Quaxtip Refer to Figure 5-4. If the price increases in the region of the demand curve between points A and B, we can expect total revenue to O1.first increase, then decrease until total revenue is maximized. O2.stay the same. O 3.increase O 4.decrease. QUESTION 6 Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result, 1, the equilibrium price increases, and the equilibrium quantity is unchanged

Explanation / Answer

a) We can expect the total revneue to Decrease. The region of demand curve between A and B is the elastic part. Any increase in the price of elastic good will lead to a decrease in the revenue.

THe ansnwer is "D". Decrease.

b) "A" the percentage decrease in the quantity will be more than the percentage increase in the price. That is what being elastic means. The answer is "A".

c) there is a 40% increase in the price and demand has only fallen by 25%. The elasticity is 25/40 is 0.62 and the demand is inelastic. As the demand is inelastic the revenue will increase. The answer is "A".

(the elasticity calculated is just an estimate to get the answer not the exact value. it will be 0.67 when calculated accurately. )

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