Microeconomica

Microeconomica Fill in the blanks in the table below by computing the elasticity values. Price Demand Total Revenue Percent change in price Percent change in quantity Elasticity 0 14 - - - 1 12 2 10 3 8 4 6 5 4 6 2 7 0 Exercise 2 1.) Suppose that the monthly demand for Alaska Club memberships is QD = 10000 – 10P. a.) Using the formula for elasticity we have described in class, suppose that the initial price is $400 dollars, calculate the price elasticity of demand between a price of $500 and $400 (P in the equation above is equal to price). Explain the meaning of your answer using the concept of elasticity. b.) Suppose that the prevailing price is $400. Would you recommend an increase in the price to $500, why or why not? Explain using the concept of elasticity. If not, describe the conditions under which you could make such a recommendation. c.) Calculate the total revenue first from the sale of memberships at a price of $400 and then at a price of $500. Do you reach a different conclusion regarding the effect of the increase in price? d.) Under what condition would you unambiguously recommend a firm to increase their price?