Anonymous
Asked: 2023-01-16T19:44:54-05:00 In:

Microeconomics (ECON 101)

Suppose the price elasticity of demand for the market of mobile phones is 0.90.

 

  1. If all mobile-phone companies simultaneously increased their prices, will total revenue in the industry increase or decrease? (1 mark)
  2. If a single mobile-phone company increased its price, would you expect the company’s total revenue to increase or decrease? Explain. (2 marks)
  3. Suppose that the price in the market is initially $10 and the quantity demanded is 100 units. If the price in this market increases by 10%, what will be the percentage change in the quantity demanded? (2 marks)
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2 Answers

  1. Professor

    1) The total revenue in the industry will decrease.

    2) The company‘s total revenue would decrease because the price elasticity of demand for the market of mobile phones is 0.90, meaning that there is a high elasticity of demand for mobile phones. This means that consumers are very sensitive to price changes, and increasing the price will result in a fall in demand.

    3) The percentage change in the quantity demanded will be –9%. This is because the price elasticity of demand is 0.90, so a 10% increase in the price will result in a 9% decrease in the quantity demanded (10% x 0.90 = 9%).

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