4. . Price ( Dollars per admission) Quantity demanded (Thousands of visits per w

Question

4. .

Price

( Dollars per admission)

Quantity demanded

(Thousands of visits per week)

The table above represents the demand schedule for visits to a local Zoo.

a) If the objective of the manager is to maximize total revenues, what admission price should the manager charge?

b) Calculate the elasticity of demand between $6 and $4.

c) What happens to the value of the price elasticity of demand as we move down along the demand curve, i.e., calculate and compare the values of the elasticity of demand between the prices $10 to $8, $8 to $6, $6 to $4 and $4 to $2.

Price

( Dollars per admission)

Quantity demanded

(Thousands of visits per week)

10 100 8 200 6 300 4 400 2 500

Explanation / Answer

a)
If the objective of the manager is to maximize total revenues, the manager should charge a price of $6.
Please refer to the table above

Ed=Percentage change in quantity demanded
Percentage change in Price

(6+4)/2= 10/2=5
% changein price= (6-4)/5 * 100
=40%

(300+400)/2=700/2=350
% change in Qd=(300-400)/350 * 100
=28.5%

Ed=28.5%/ 40%
=0.714

d) As seen from the table above the elastcity keeps on decreasing as we move down along the demand curve.

Price Quantity demanded TR=PQ ( Dollars per admission) (Thousands of visits per week) Mid-point Px Mid-point Qd Change in Qd Channge in P % change in Qd % change in P Ed 10 100 1000 9 150 -100 2 -66.66666667 22.22222 -3 8 200 1600 7 250 -100 2 -40 28.57143 -1.4 6 300 1800 5 350 -100 2 -28.57142857 40 -0.71429 4 400 1600 3 450 -100 2 -22.22222222 66.66667 -0.33333 2 500 1000

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