posted by Monica on .
A sporting goods store has estimated the demand curve for a popular brand of running shoes as a function of price. Use the diagram to answer the questions that follow.
a. Calculate demand elasticity using the midpoint formula between points A and B, between points C and D, and between points E and F.
b. If the store currently charges a price of $50, then increases that price to $60, what happens to total revenue from shoe sales (calculate P × Q before and after the price change)? Repeat the exercise for initial prices being decreased to $40 and $20, respectively.
c. Explain why the answers to a. can be used to predict the answers to b.
(Principles of Microeconomics, 9th Edition. Pearson Learning Solutions 9.9).