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Answer to Question #6811 in Microeconomics for Assam Alzookery

Question #6811
Elasticity Worksheet: The Case of the Missing Money
Mickey operates a small business that produces 3 products. We will call these products A, B, and C. Mickey's costs of production have recently increased by approximately $5,000. Since his total revenue (his sales) was just a little over$100,000, Mickey figured he would pass on the increased costs of production to his customers by raising his prices 5%. But, after raising the price of all three products by 5%, Mickey found himself with LESS money than he had before. He has asked you to find out what happened and has supplied the following data. Complete the blank spaces and answer the questions.

Before Mickey Raises Price After Mickey Raises Price % chg using midpoint formula Price Elasticity
of Demand
Units Price Total Revenue Units Price Total Revenue % chg Q % chg P
Product A 531 $78.00 469$82.00 12.5% 5.0%
Product B 1,025 $39.00 975$41.00 5.0% 5.0%
Product C 1,010 $19.50 990$20.50 2.0% 5.0%
T
Price elasticity = DQ(%) /DP(%)
Total revenues:
- & for Product A: decrease, because product A is elastic good (|Price Elasticity| > 1)
- & for Product B: do not change,& because the product B has unit elasticity (|Price Elasticity| = 1)
- & for Product C: increase, because product C is inelastic good (|Price Elasticity| < 1).

Mickey has total fall in revenues (from $101 088& to$98 728) because inelastic good takes only 20% in total revenue structure and revenue form elastic good has 40% in total structure.

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