Elasticity and Utility Exercises

Solution is available here for U$25

Use the following hypothetical demand schedule for movies to do exercises 1–4.

Quantity Demanded Price Elasticity

100 5

80 10

60 15

40 20

 20 25

10 30

1. a. Determine the price elasticity of demand at each quantity demanded using the formula: Percentage change in quantity demanded [1] (Q2

---

 Q1)/Q1 divided by percentage change in price (P2 P1)/P1.

b. Redo exercise 1a using price changes of $10 rather than $5.

c. Plot the price and quantity data given in the demand schedule. Indicate the price elasticity value at each quantity demanded. Explain why the elasticity value gets smaller as you move down the demand curve.

7. Suppose the price elasticity of demand for movies by teenagers is 0.2 and that by adults is 2.0. What policy would the movie theater implement to increase total revenue? Make up some data to illustrate your answer.

1. Using the following information, calculate total utility and marginal utility.

 a. Plot the total utility curve.

b. Plot marginal utility directly below total utility.

c. At what marginal utility value does total utility reach a maximum?

 Number of utils for the first unit: 300

Number of utils for the second unit: 250

Number of utils for the third unit: 220

Number of utils for the fourth unit: 160

Number of utils for the fifth unit: 100

Number of utils for the sixth unit: 50

Number of utils for the seventh unit: 20

Number of utils for the eighth unit: 0

Number of utils for the ninth unit: (-250) 4.

Using the following utility schedule, derive a demand curve for pizza.

a. Assume income is $10, the price of each slice of pizza is $1, and the price of each glass of beer is $2. Then change the price of pizza to $2 per slice.

b. Now change income to $12 and derive a demand curve for pizza.

Slices of Pizza Total Utility Glasses of Beer Total Utility

1 200 1 500

2 380 2 800

3 540 3 900

4 600 4 920

5 630 5 930