ECON 213 Economic Analysis: Elasticity, Profit Maximization, Shutdown Decisions, and Marginal Productivity
Economic analysis of various concepts.
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ECON 213
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ECON 213 Economic Analysis: Elasticity, Profit Maximization, Shutdown Decisions, and
Marginal Productivity
PROBLEM SET 3
Name: _______Kyudong Kim_____________________________
Problem Set 3 is due by 11:59 p.m. (ET) on Monday of Module/Week 6.
1. Data for the market for graham crackers is shown below. Calculate the elasticity of demand
between the following prices.
Price of
crackers
Quantity Demanded (per month)
$3 80
$2.5 120
$2 160
$1.5 200
$1 240
$1.00–$1.50: ____-.45 inelasticity ___________________
$1.50–$2.00: ____-.78 inelasticity ___________________
$2.00–$2.50: ____-1.29 elasticity ___________________
$2.50–$3.00: ____-2.2 elasticity _____________________
Now, assume the price of graham crackers is $2.75. Should firms raise or lower their prices if
they want to increase revenue? Explain this in terms of elasticity.
They must lower the prices .75 to raise revenues. The elasticity of demand from 2.50-3.00 is 2.2,
meaning with a reduction in prices there would be an elastic effect on quantity demanded. The
maximum profit would be at the price of $2 because of the increased in demand with the price
reduction.
Page 1 of 4
ECON 213 Economic Analysis: Elasticity, Profit Maximization, Shutdown Decisions, and
Marginal Productivity
PROBLEM SET 3
Name: _______Kyudong Kim_____________________________
Problem Set 3 is due by 11:59 p.m. (ET) on Monday of Module/Week 6.
1. Data for the market for graham crackers is shown below. Calculate the elasticity of demand
between the following prices.
Price of
crackers
Quantity Demanded (per month)
$3 80
$2.5 120
$2 160
$1.5 200
$1 240
$1.00–$1.50: ____-.45 inelasticity ___________________
$1.50–$2.00: ____-.78 inelasticity ___________________
$2.00–$2.50: ____-1.29 elasticity ___________________
$2.50–$3.00: ____-2.2 elasticity _____________________
Now, assume the price of graham crackers is $2.75. Should firms raise or lower their prices if
they want to increase revenue? Explain this in terms of elasticity.
They must lower the prices .75 to raise revenues. The elasticity of demand from 2.50-3.00 is 2.2,
meaning with a reduction in prices there would be an elastic effect on quantity demanded. The
maximum profit would be at the price of $2 because of the increased in demand with the price
reduction.
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Document Details
University
Harvard University
Subject
Economics