Suppose Bobby, the owner-manager of Bobby’s Red Hot BBQ restaurant, projects the

Question

Suppose Bobby, the owner-manager of Bobby’s Red Hot BBQ restaurant, projects the following demand for his Baby Back Rib platter:

Price $

Quantity Purchased (per night)

9

110

11

100

13

80

a. Calculate the price elasticity of demand between $9 and $11.

b. Is the price elasticity of demand between $9 and $11 elastic, unit elastic, or inelastic?

c. Will Bobby’s total revenue rise if he increases the price from $9 to $11?

d. calculate the price elasticity of demand between $11 and $13.

e. Is the price elasticity of demand between $11 and $13 elastic, unit elastic, or inelastic?

f. Will Bobby’s total revenue rise if he increases the price from $11 to $13?

Price $

Quantity Purchased (per night)

9

110

11

100

13

80

Explanation / Answer

a. Price elasticity of demand between $9 and $11 is [(100-110)/110]/[(11-9)/9] = -0.409 b. Inelastic c. Revenue goes from 990 (=9x110) to 1100 (=11x100), so yes, total revenue rises. d. -1.1 e. Elastic f. Revenue goes from 1100 to 1040 so no, total revenue actually decreases.

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