The following graph shows the market for sprockets in a local hardware store.

a) identify whether the price of sprockets from $4 to $3 is elastic, unit elastic, or enelastic. Explain.

b) what is the price of sprockets that maximize the hardware store’s revenue? Explain.

c) The price of sprockets is $1. If the hardware store wants to increase its revenue, how should it change the price? Explain.

d) using the midpoint formula, calculate the price elasticity of demand for sprockets when price increases from $2 to $3. Identify the coefficient as elastic, unit elastic or inelastic.

e) using the midpoint formula, calculate the price elasticity of demand for sprockets when price decreases from $5 to $4. Identify the coefficient as elastic, unit elastic or inelastic.

f) based on the scenario in part E, how does the decrease in price affect the hardware store’s revenue?

c. When the price is equal to $9, the demand is elastic. Therefore, there should be a decrease in price in order to increase total revenue.

d. Price elasticity of demand= ((96-112)/(112+96)/2)) ÷((8-7)/(8+7)/2))

= -2.14

This is an elastic demand.

e. When price=$6, Quantity=18

When Price=$5, Quantity= 20

Price elasticity of demand= ((20-18)/(20+18)/2)) ÷((5-6)/(5+6)/2))

= - 0.58

This is an inelastic demand.

f. Total revenue falls from $108 to $100 when the price falls from $6 to $5.

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