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Em c3 demand elasticities
demand elasticity
a quantitative measurement (coefficient) showing the percentage change in the quantity demanded of a particular product relative to the percentage change in any one of the variables included in the demand function for that product
the price elasticity of demand (ep) is defined as the percentage change in the quantity demanded of a given good, X, relative to a percentage change in its price, all other faxtors assumed constant
ep = %delta Qx / %delta Px
price elasticity values
elastic demand
the percentage change in quantity demanded by consumers is greater than the percentage change in price
inelastic demand (inverse
elasticity and total revenue
total revenue = P*Q
the maximized figure occurs when |ep| =1
if demand is elastic, a decrease in price results in an increase in total revenue, and an increase in price results in a decrease in total revenue
two alternative functions P1/(P1-P2) p2 the edge
X/Y (X stands for the sales revenue increase as a result of increase in sales, Y stands for the sales revenue decrease as a result of decrease in price)
determinants of price elasticity of demand (more inla)
1.the number of substitute goods (fewer)
2.the percent of a consumer\'s income that is spent on the product (smaller)
3.the time period under consideration (shorter)
arc price elasticity of demand
a measurement of the price elasticity of demand where the base quantity or price is calculated as the average value of the starting and ending quantities or prices
point price elasticity
a measurement of the price elasticity of demand calculated at a point on the demand curve using infinitesimal changes in prices and quantities
ep = dQxPx/dPxQx
ep = p/(p-Alfa)
alfa = the vertical intercept of the plotted demand curve/same as p2 in the previous function / extreme n
total revenue function
the functional relationship that shows the total revenue (price times quantity) received by,a producer as a function of the level of output
average revenue
total revenue per unit of output. average revenue equals the price of the product by definition
average revenue function
the functional relationship that shows the revenue per unit of output received by the producer ar different levels of output
table an illustration
demand function Q =12 - P or P =12 - Q
total revenue function TR =12Q - Q2
average revenue function AR = TR/Q =P
marginal revenue function MR =dTR/dQ = 12 - 2Q
marginal revenue
the addtional revenue that a firm takes in from selling an additional unit of output or the change in total revenue divided by the change in output
marginal revenue function
the functional relationship that shows the addtional revenue a producer receives by selling an additional unit of output at different levels of output
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