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Worked Problems
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1
Suppose a firm sells 20,000 units when the price is $16, but sells 30,000 units when the price falls to $14.
  1. Calculate the percentage change in the quantity sold over this price range using the midpoint formula.
  2. Calculate the percentage change in the price using the midpoint formula.
  3. Find the price elasticity of demand over this range of prices. State whether demand is elastic or inelastic over this range.
  4. Suppose the elasticity of demand is constant over a large range of prices. If the price were to fall another 4%, what should the firm predict will happen to its sales?

2
Suppose a firm sells 70 units when the price is $6, but sells 80 units when the price falls to $4.
  1. Calculate the firm's revenue at each of the prices.
  2. Use the total-revenue test to determine whether demand is elastic or inelastic over this range.
  3. Verify your previous answer by calculating the elasticity of demand using the midpoint formula

3
Suppose the market for watermelons can be described by the graph below.
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  1. If Jon's maximum willingness to pay for a watermelon is $8, how much surplus is he receiving at the market price of $6?
  2. Suppose Figgy Farms requires at least $5 per watermelon before they will sell in this market. What is Figgy's producer surplus in this market?
  3. How much total consumer surplus is received in this market?
  4. How much total producer surplus is received in this market?
  5. What is the combined surplus in the market?






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