ECON 213Page1of4ECON 213Economic Analysis: Elasticity, Profit Maximization, Shutdown Decisions, andMarginal ProductivityPROBLEMSET3Name:_______Kyudong Kim_____________________________Problem Set 3isdueby 11:59 p.m. (ET) on Mondayof Module/Week 6.1.Data for the market for graham crackers is shown below.Calculate the elasticity of demandbetween the following prices.Price ofcrackersQuantity Demanded (per month)$380$2.5120$2160$1.5200$1240$1.00–$1.50:____-.45 inelasticity___________________$1.50–$2.00:____-.78 inelasticity___________________$2.00–$2.50:____-1.29 elasticity___________________$2.50–$3.00:____-2.2 elasticity_____________________Now, assumethe price of graham crackers is $2.75.Should firms raise or lower their prices ifthey want to increase revenue?Explain this in terms of elasticity.They mustlowertheprices.75to raise revenues. The elasticity of demand from 2.50-3.00 is2.2,meaning with a reduction in prices there would be an elastic effect on quantity demanded. Themaximum profit would be at the price of $2 because of the increased in demand with the pricereduction.Preview Mode
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