Fill in the blanks in the table below by computing the elasticity values.
Percent change in price
Percent change in quantity
1.) Suppose that the monthly demand for Alaska Club memberships is QD = 10000 – 10P.
a.) Using the formula for elasticity we have described in class, suppose that the initial
price is $400 dollars, calculate the price elasticity of demand between a price of $500 and
$400 (P in the equation above is equal to price). Explain the meaning of your answer
using the concept of elasticity.
b.) Suppose that the prevailing price is $400. Would you recommend an increase in the
price to $500, why or why not? Explain using the concept of elasticity. If not, describe
the conditions under which you could make such a recommendation.
c.) Calculate the total revenue first from the sale of memberships at a price of $400 and
then at a price of $500. Do you reach a different conclusion regarding the effect of the
increase in price?
d.) Under what condition would you unambiguously recommend a firm to increase their
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