The demand curve D 0 and the supply curve S 0 show that the original equilibrium price is 3.25 per pound and the original equilibrium quantity is 250,000 fish. For example, a company that faces elastic demand could see a 20 percent increase in quantity demanded if it were to decrease price by 10 percent.Ĭlearly, there are two effects on revenue happening here: more people are buying the company's output, but they are all doing so at a lower price. Draw a demand and supply model to illustrate the market for salmon in the year before the good weather conditions began.
If a company faces elastic demand, then the percent change in quantity demanded by its output will be greater than a change in price that it puts in place. This is exactly where price elasticity of demand comes into the picture. Demand, Average Revenue, and Marginal Revenue: the demand curve for the monopolist’s output slopes downward the demand curve is also the monopolist’s average revenue curve. Based on our demand curve, when DeBeers decreases its prices two things happen DeBeers loses money on the 80 million Carats of diamonds they were originally. Would it make sense to raise prices? To lower prices? To answer this question, it's important to consider how many sales would be gained or lost due to the changes in price. A unique experience can lead to monopoly profits. As a monopolist, what is the total effect of a price change from 2,400 to 1,600 on revenue Break this change into an increase and a decrease. One important question for a company is what price it should charge for its output. Of 03 Price Elasticity of Demand and Revenue