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What you will learn... Total revenue and profit Elasticity and change in total revenue Take this challenge.

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Presentation on theme: "What you will learn... Total revenue and profit Elasticity and change in total revenue Take this challenge."— Presentation transcript:

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3 What you will learn... Total revenue and profit Elasticity and change in total revenue Take this challenge

4 Total revenue refers to the sellers total gross _______________________________________. Quantity D S Price P Q 0 receipts from the sale of goods and services Total revenue = consumers ________________ Profit = ______________________ total revenue – total cost total expenditure Total revenue and profit = total _______ value market

5 Price ($)Qd Suppose the price of the good decreases from $6 to $ QdPrice ($) What is the effect on total revenue? Inelastic demand D Quantity Price Elasticity and change in total revenue Q

6 D Quantity Price Loss in revenue Gain in revenue ___ units are sold at $1 less. 70 Loss = ___________ $1 70 = $70 ___ more units are sold at $5. 10 Gain = ___________ $5 10 = $50 Change in total revenue Loss ___ Gain > Total revenue will _______. decrease If demand is inelastic, a decrease in price will lead to ___________ in total revenue. a decrease Loss in revenue Gain in revenue Inelastic demand Elasticity and change in total revenue

7 QdPrice ($) Suppose the price of the good decreases from $8 to $ QdPrice ($) What is the effect on total revenue? D Quantity Price Elastic demand Elasticity and change in total revenue Q

8 D Quantity Price Elastic demand Elasticity and change in total revenue Loss in revenue Gain in revenue ___ units are sold at $1 less. 100 Loss = ____________ $1 100 = $100 ___ more units are sold at $7. 30 Gain = ____________ $7 30 = $210 Change in total revenue Loss ___ Gain < Total revenue will _______. increase If demand is elastic, a decrease in price will lead to ___________ in total revenue. an increase Loss in revenue Gain in revenue

9 QdPrice ($) Suppose the price of the good decreases from $5 to $4. What is the effect on total revenue? Unitarily elastic demand Elasticity and change in total revenue QdPrice ($) D Quantity Price Q

10 Unitarily elastic demand Elasticity and change in total revenue D Quantity Price Loss in revenue Gain in revenue ___ units are sold at $1 less. 20 Loss = ___________ $1 20 = $20 ___ more units are sold at $4. 5 Gain = ___________ $4 5 = $20 Change in total revenue Loss ___ Gain = Total revenue will _______________. remain unchanged If demand is unitarily elastic, a decrease in price will lead to _________ in total revenue. no change Loss in revenue Gain in revenue

11 Elasticity and change in total revenue All rectangles formed on a unitarily elastic demand curve are ___________. This property is called ____________________. rectangular hyperbolaequal in area Unitarily elastic demand D Quantity Price Loss in revenue Gain in revenue ___ units are sold at $1 less. 20 Loss = ___________ $1 20 = $20 ___ more units are sold at $4. 5 Gain = ___________ $4 5 = $20 Change in total revenue Loss ___ Gain = Total revenue will _______________. Loss in revenue Gain in revenue remain unchanged

12 Take this challenge 1 Mr Chan owns a restaurant. There are people waiting outside his restaurant for lunch every day. Explain why this happens. Q1Q1 P0P0 0 PriceNumber of seats Q0Q0 S D Since the price set by Mr Chan is _______ the equilibrium price, there is a shortage ( ___ - ___ ). below Q1Q1 Q0Q0 So there are __________ people waiting outside the restaurant. Q 1 - Q 0 Q

13 Take this challenge 1 If Mr Chan raises the price of the food, what will be the effect on the total revenue? (Suppose there are still some people waiting outside the restaurant after the increase in price.) Is this related to the price elasticity of demand for the food? Suppose the price increases from P 0 to P 1. P1P1 The price __________ but the quantity transacted ________________________. increases remains unchanged at Q 0 Total revenue will _________.increase The change in total revenue depends / does not depend on the price elasticity of demand for the food. Q P0P0 0 Price Number of seats Q0Q0 S D Q1Q1

14 Take this challenge 2 Suppose a new medicine to cure cancers, which has fewer side effects than existing ones, has been invented. Should the producer raise the price of the medicine if he wants to increase total revenue? Explain. Since there are no _________________ for the medicine, the demand for it is _________. As the demand is inelastic, an increase in price will ________ the sellers total revenue. So he should _______ the price. close substitutes inelastic increase raise D Quantity Price Gain Loss Q


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