A manufacturer of aluminum doors currently is able to sell 200 doors per week at

Question

A manufacturer of aluminum doors currently is able to sell 200 doors per week at a price of $80 each. If the price were lowered to $60 each, an additional 20 doors per week could be sold. Estimate the current elasticity of demand for the doors, and also estimate the current value of the manufacturer's inarginal-revenue function. A real estate firm owns 100 garden-type apartments. At $1,100 per month each apartment can be rented. However, for each $50 per month increase, there will be two vacancies with not possibility of filling them. What rent per apartment will maximize monthly revenue?

Explanation / Answer

3)

Elasticity of demand = % change in quantity demanded / % change in price

% change in quantity demaned = 20/200 *100

=10 %

% Change in price = 20/80 *100

= 25 %

Elasticity of demand = 10%/25%

= 0.4

4) TR when price is 1100 =1,100*100

=$110,000

TR when price increased to 1,150 = 1,150 *98

=112, 700

$ 50 increase in the rent would maximize monthly revenue

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