Given below are the demand and supply equations for laptops

Given below are the demand and supply equations for laptops: P 10,000 40Q P 500 100 Calculate the price elasticity of demand at a price of $2 increase total revenue, should the seller increase or decrease his p r why not. ,000. If the seller aims to rice? Explain why

Solution

Answer.) We have demand curve:-

P = 10,000 - 40Q

At price = $2000

Q = 200

We know that

Elasticity = (? Q/? P) × (P/Q)

adjusting demand curve, we have,

Q = 250 - (0.025)P

(? Q/? P) = -(0.025)

Now,

Elasticity of demand = (? Q/? P) × (P/Q) = [(-0.025)(2000/200)] = -(0.25)

Since absolute elasticity is less than 1 therefore demand is inelastic.

If the seller aims to incresae total revenue it should increase price because, according to total outlay method of elasticity, If elasticity is relatively inelastic then producer should increase the price since customers are relatively inactive to respond to any changes in price level, thus, it would end up increasing total revenue.