one of the growers is excited by the price increase caused by the blight because she believes it will…

one of the growers is excited by the price increase caused by the blight because she believes it will increase revenue in this market. as an economics student, you can use elasticities to determine whether this change in price will lead to an increase or decrease in total revenue in this market. using the mid - point method, the price elasticity of demand for apples between the prices of $15 and $18 per bushel is between these two points. therefore, you would tell the grower that her claim is as a result of the blight. because total revenue will confirm your previous conclusion by calculating total revenue in the apple market before and after the blight. enter these values in the following table. total revenue (millions of dollars) before blight after blight

one of the growers is excited by the price increase caused by the blight because she believes it will increase revenue in this market. as an economics student, you can use elasticities to determine whether this change in price will lead to an increase or decrease in total revenue in this market. using the mid - point method, the price elasticity of demand for apples between the prices of $15 and $18 per bushel is between these two points. therefore, you would tell the grower that her claim is as a result of the blight. because total revenue will confirm your previous conclusion by calculating total revenue in the apple market before and after the blight. enter these values in the following table. total revenue (millions of dollars) before blight after blight

Answer

Explanation:

Step1: Find quantity demanded at $15 and $18 from the demand - curve

From the demand - curve, when price $P_1 = 15$, quantity $Q_1=18$ million bushels; when price $P_2 = 18$, quantity $Q_2 = 12$ million bushels.

Step2: Calculate total revenue before blight

Total revenue $TR_1=P_1\times Q_1$. Substitute $P_1 = 15$ and $Q_1 = 18$ into the formula: $TR_1=15\times18 = 270$ million dollars.

Step3: Calculate total revenue after blight

Total revenue $TR_2=P_2\times Q_2$. Substitute $P_2 = 18$ and $Q_2 = 12$ into the formula: $TR_2=18\times12=216$ million dollars.

Step4: Calculate price elasticity of demand using the mid - point formula

The mid - point formula for price elasticity of demand $E_d=\frac{\frac{Q_2 - Q_1}{\frac{Q_2+Q_1}{2}}}{\frac{P_2 - P_1}{\frac{P_2+P_1}{2}}}$. Substitute $Q_1 = 18$, $Q_2 = 12$, $P_1 = 15$, and $P_2 = 18$: $\frac{Q_2 - Q_1}{\frac{Q_2+Q_1}{2}}=\frac{12 - 18}{\frac{12 + 18}{2}}=\frac{-6}{15}=-0.4$; $\frac{P_2 - P_1}{\frac{P_2+P_1}{2}}=\frac{18 - 15}{\frac{18+15}{2}}=\frac{3}{16.5}\approx0.182$; $E_d=\frac{-0.4}{0.182}\approx - 2.2$. Since $|E_d|>1$, demand is elastic. When demand is elastic, an increase in price leads to a decrease in total revenue.

Answer:

Before Blight: 270 After Blight: 216 True; elastic; decrease