Scribd Logo
Upload

Welcome to Scribd!

  • 5 views

    MRK - Spring 2023 - ECO401 - 1 - BC230205996

    Uploaded by

    areejmirza18
    1) The student calculated the price elasticity of demand for a coffee shop that is considering raising its price from Rs. 200 to Rs. 250 per cup. The elasticity is -2, showing that demand is elastic. 2) Total revenue was calculated before and after the price increase. Total revenue was Rs. 400,000 before and Rs. 250,000 after, showing that revenue decreased with the price increase. 3) The price increase had a negative effect on total revenue. Although price increased, the large decrease in quantity demanded from 2,000 cups to 1,000 cups due to the elastic demand led to an overall decrease in total revenue from Rs. 400,000 to Rs. 250,

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content

    You might also like

    MRK - Spring 2023 - ECO401 - 1 - BC230205996

    Uploaded by

    areejmirza18
    5 views5 pages
    1) The student calculated the price elasticity of demand for a coffee shop that is considering raising its price from Rs. 200 to Rs. 250 per cup. The elasticity is -2, showing that demand is elastic. 2) Total revenue was calculated before and after the price increase. Total revenue was Rs. 400,000 before and Rs. 250,000 after, showing that revenue decreased with the price increase. 3) The price increase had a negative effect on total revenue. Although price increased, the large decrease in quantity demanded from 2,000 cups to 1,000 cups due to the elastic demand led to an overall decrease in total revenue from Rs. 400,000 to Rs. 250,

    Original Description:

    Original Title

    Mrk_Spring 2023_ECO401_1_BC230205996

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    1) The student calculated the price elasticity of demand for a coffee shop that is considering raising its price from Rs. 200 to Rs. 250 per cup. The elasticity is -2, showing that demand is elastic. 2) Total revenue was calculated before and after the price increase. Total revenue was Rs. 400,000 before and Rs. 250,000 after, showing that revenue decreased with the price increase. 3) The price increase had a negative effect on total revenue. Although price increased, the large decrease in quantity demanded from 2,000 cups to 1,000 cups due to the elastic demand led to an overall decrease in total revenue from Rs. 400,000 to Rs. 250,

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    5 views5 pages

    MRK - Spring 2023 - ECO401 - 1 - BC230205996

    Uploaded by

    areejmirza18
    1) The student calculated the price elasticity of demand for a coffee shop that is considering raising its price from Rs. 200 to Rs. 250 per cup. The elasticity is -2, showing that demand is elastic. 2) Total revenue was calculated before and after the price increase. Total revenue was Rs. 400,000 before and Rs. 250,000 after, showing that revenue decreased with the price increase. 3) The price increase had a negative effect on total revenue. Although price increased, the large decrease in quantity demanded from 2,000 cups to 1,000 cups due to the elastic demand led to an overall decrease in total revenue from Rs. 400,000 to Rs. 250,

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 5

    MARKS =9 GOOD EFFORT

    Economics (ECO401)

    Lecturer: - Syed Ali Abbas

    Assignment No: - 1

    Name: - Hadia Shahbaz

    ID no: - bc230205996
    The Case:
    Suppose XYZ is a coffee shop and located in one of the busy crowded university of Pakistan. This
    coffee shop is a popular spot for people to sit and discuss their studies and it is also famous for a
    quick cup of coffee on their way to class. The shop is open from 9:00 AM to 6:00 PM, Monday
    through Friday. The shop is currently selling 2,000 cups of coffee per day for Rs 200. The owner of
    the coffee shop is considering raising the price of a cup of coffee from Rs. 200 to Rs. 250. Coffee
    shop demand function is given below 𝑄𝑑=6000−20𝑃

    Requirements:
    A. Calculate price elasticity of demand when price is Rs. 250.
    B. Calculate total revenue both before and after price rise.
    C. Also explain what will be the effect of price increase on total revenue by keeping in view the
    results of part B?

    Answer:

    A. Calculate price elasticity of demand when price is Rs. 250.

    Qd1 =6000-20(200)
    Qd1 =6000-4000
    Qd1 =2000

    Qd2 =6000-20(250)
    Qd2 =6000-5000
    Qd2 =1000

    Change in quantity = Qd2 – Qd1


    =1000-2000
    = -1000 MARKS=1

    Percentage change in quantity=

    =
    = -50%

    Change in price= P2-P1


    =250-200
    =50
    Percentage change in price=

    =
    =25%
    Elasticity = Percentage change in quantity / Percentage change in price

    =
    = -2 MARKS=2 Answer is not according to the requirement.

    B. Calculate total revenue both before and after price rise.

    Total revenue before price change =


    = 400000 marks=2

    Total revenue after price change =


    = 250000 marks=2

    C. Also explain what will be the effect of price increase on total revenue by
    keeping in view the results of part B?
    As we can see from all the calculation the increase in price has very negative
    effect on sale of coffee. As we know the sale dropped from 2000 to 1000 which leads to
    total revenue drop from Rs.400000 to 250000. The price elasticity value 0f -2 the demand
    of coffee is elastic. With price change demand is decreased by 50%.
    So overall the effect of price change is negative on revenue. MARKS=2

    You might also like