You are a monopolist who sells textbooks to undergraduate students. Currently you sell 100 books at a price of $100 each, for revenue of $10,000. Each book is essentially costless to print, so you ignore fixed costs and focus on maximizing revenue. Based on research by your marketing team, you learn that some students will not buy the book if the price goes up. Also, if you cut the price, more students will buy the book. Suppose the price elasticity of demand is - 0.5. If the price of each textbook is increased by 10 percent, the new revenue earned is $ nothing.

Question

Trevor Rivas

Business

21 February, 01:49

You are a monopolist who sells textbooks to undergraduate students. Currently you sell 100 books at a price of $100 each, for revenue of $10,000. Each book is essentially costless to print, so you ignore fixed costs and focus on maximizing revenue. Based on research by your marketing team, you learn that some students will not buy the book if the price goes up. Also, if you cut the price, more students will buy the book. Suppose the price elasticity of demand is - 0.5. If the price of each textbook is increased by 10 percent, the new revenue earned is $ nothing.

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Answers (1)

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Korbin Wise · Answer 1

Given:

Old Price of book = P100

Let X = Change in quantity

Let Y = Change in Price (10%)

The formula for price elasticity is:

Price Elasticity = (% Change in Quantity) / (% Change in Price)

.50=X/Y

-.50=X / (10)

x/10=.50

X=.50 (10)

X=5

Let Z=New Quantity Demanded

Z=100+.05 (100)

Z=100+5

Z=105

Let A=New price

A = 100+.10 (100)

A=100+10

A=110

New Total revenue = Z (A)

=105*110

=11,550