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Author Question: Consider the indifference maps shown above. If X and Y are perfect substitutes, your indifference ... (Read 179 times)

charchew

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on: Jun 29, 2018
Consider the indifference maps shown above. If X and Y are perfect substitutes, your indifference curves between them would look like those in
 
  A) Figure A.
  B) Figure B.
  C) Figure C.
  D) Figure D.

Question 2

What effect does a price increase have on producers' total revenue?
 
  What will be an ideal response?


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juliaf

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Reply #1 on: Jun 29, 2018
Answer to Question 1

A

Answer to Question 2

The effect of a price increase in total revenue depends on the elasticity of demand. If the demand is elastic, then total revenue will decrease because the decrease in the quantity demanded will outweigh the effect of the higher price. If the demand is inelastic, then total revenue will increase. In this case, the decrease in the quantity demanded is proportionally less than the increase in price and so the higher price leads to increased total revenue. Finally, if the demand is unit elastic, then the higher price does not change the total revenue. The percentage decrease in the quantity demanded just equals the percentage increase in the price and so the two effects just offset each other. The total revenue does not change.


charchew

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Reply 2 on: Jun 29, 2018
Thanks for the timely response, appreciate it

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Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

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