1. Elasticity of demand is the sensitivity of the customers to the change in price of a product.
2. The degree of elasticity of demand is measured by the coefficient Ed which is
Percentage Change in Quantity Demanded/Percentage Change in Price
Percentage Change in Price = Change in Price/Original Proce * 100
a. If %change in Price is < %change in Quantity Demanded = Elastic
b. If %change in Price is = infinite change in Quantity demanded = Perfectly Elastic
c. If %change in Price is > %change in Quantity Demanded = Inelastic
d. If %change in Price is = 0 Change in Quantity Demanded = Perfectly Inelastic
e. If %change in Price is = %change in Quantity Demanded = Unit Elasticity
Total Revnue = Unit Price * Quantity Sold.
1.If Price and Total Revenue Change inversely = Elastic
2.If Price and Total Revenue Change Directly = Inelastic
5. On the same demand curve the elasticity is different depending on the location:
Q2) Explain firms revenue under Perfect Competition.
Demand for a consumer = Price per unit*Quantity Purchased
Demand for a seller = Revenue Per Unit*Quantity Sold
TR: Total Revenue = Price * Quantity Sold
MR: Marginal Revenue = EXTRA revenue generated by selling an additional unit
1. There are a large number of firms
3. An individual seller does not have any influence on the market price
4. There is no need for advertisements for this kind of a market
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