what you will learn... total revenue and profit elasticity and change in total revenue take this...
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What you will learn ...
Total revenue and profit
Elasticity and change in total revenue
Take this challenge
Total revenue refers to the sellers’ total gross _______________________________________.
QuantityD
S Price
P
Q0
receipts from the sale of goods and servicesTotal revenue = consumers’ ________________
Profit
= ______________________total revenue – total cost
total expenditure
Total revenue and profit
= total _______ valuemarket
Price ($) Qd
4
5
6
7
8
9
90
80
70
60
50
40
Suppose the price of the good decreases from $6 to $5.
90
80
70
60
50
40
4
5
6
7
8
9
QdPrice ($)
What is the effect on total revenue?
70
6
5
80
Inelastic demand
DQuantity
Price
Elasticity and change in total revenue
Q
DQuantity
Price
6
5
70 80
Loss in revenue
Gain in revenue
___ units are sold at $1 less.70
Loss = ___________$1 70 = $70
___ more units are sold at $5.10
Gain = ___________$5 10 = $50
Change in total revenue
Loss ___ Gain>
Total revenue will _______.decrease
If demand is inelastic, a decrease in price will lead to ___________ in total revenue.a decrease
Loss in revenue
Gain in revenue
Inelastic demand
Elasticity and change in total revenue
220
190
160
130
100
70
4
5
6
7
8
9
QdPrice ($)
Suppose the price of the good decreases from $8 to $7.
220
190
160
130
100
70
4
5
6
7
8
9
QdPrice ($)
What is the effect on total revenue?
100
8
7
130
D
Quantity
Price
Elastic demand
Elasticity and change in total revenue
Q
100
8
7
130
D
Quantity
Price
Elastic demand
Elasticity and change in total revenue
Loss in revenue
Gain in revenue
___ units are sold at $1 less.100
Loss = ____________$1 100 = $100
___ more units are sold at $7.30
Gain = ____________$7 30 = $210
Change in total revenue
Loss ___ Gain<
Total revenue will _______.increase
If demand is elastic, a decrease in price will lead to ___________ in total revenue.an increase
Loss in revenue
Gain in revenue
100
50
25
20
10
1
2
4
5
10
QdPrice ($)
Suppose the price of the good decreases from $5 to $4.
What is the effect on total revenue?
20
5
4
25
Unitarily elastic demand
Elasticity and change in total revenue
100
50
25
20
10
1
2
4
5
10
QdPrice ($)
DQuantity
Price
Q
20
5
4
25
Unitarily elastic demand
Elasticity and change in total revenue
DQuantity
Price Loss in revenue
Gain in revenue
___ units are sold at $1 less.20
Loss = ___________$1 20 = $20
___ more units are sold at $4.5
Gain = ___________$4 5 = $20
Change in total revenue
Loss ___ Gain=
Total revenue will _______________.remain unchanged
If demand is unitarily elastic, a decrease in price will lead to _________ in total revenue.no change
Loss in revenue Gain in revenue
Elasticity and change in total revenue
All rectangles formed on a unitarily elastic demand curve are ___________. This property is called ____________________.rectangular
hyperbolaequal in area
20
5
4
25
Unitarily elastic demand
DQuantity
Price Loss in revenue
Gain in revenue
___ units are sold at $1 less.20
Loss = ___________$1 20 = $20
___ more units are sold at $4.5
Gain = ___________$4 5 = $20
Change in total revenue
Loss ___ Gain=
Total revenue will _______________.Loss in revenue
Gain in revenue remain unchanged
Take this challenge 1
Mr Chan owns a restaurant. There are people waiting outside his restaurant for lunch every day. Explain why this happens.
Q1
P0
0
Price
Number of seatsQ0
S
D
Since the price set by Mr Chan is _______ the equilibrium price, there is a shortage ( ___ - ___ ).
belowQ1 Q0
So there are __________ people waiting outside the restaurant.
Q1 - Q0
Q
Take this challenge 1If Mr Chan raises the price of the food, what will be the effect on the total revenue? (Suppose there are still some people waiting outside the restaurant after the increase in price.) Is this related to the price elasticity of demand for the food?
Suppose the price increases from P0 to P1.
P1
The price __________ but the quantity transacted ________________________.
increases remains unchanged at Q0 Total revenue will _________.increase
The change in total revenue depends / does not depend on the price elasticity of demand for the food.
Q
P0
0
Price
Number of seatsQ0
S
D
Q1
Take this challenge 2
Suppose a new medicine to cure cancers, which has fewer side effects than existing ones, has been invented.Should the producer raise the price of the medicine if he wants to increase total revenue? Explain.
Since there are no _________________ for the medicine, the demand for it is _________.
As the demand is inelastic, an increase in price will ________ the seller’s total revenue.
So he should _______ the price.
close substitutesinelastic
increase
raiseDQuantity
Price
Gain Loss
Q