Im trying to get through some economics questions so im prepared for
my test. The questions posted are the ones I have been having some
trouble with. Please Answer them and include graphs wherever they
would be helpful in explaining the question proposed.

I need an answer by 4/7 at 3:30-4:00PM... please leave a message here
if you have any questions, and tell me if the amount the question is
priced at needs revision. Thanks!

The following data points were identified from some recent work into
the demand for hemp clothing products:
Point   Q       P
A       450     20
B       650     16
C       350     25

Graph the demand curve.   Show your  work, using the midpoint formula,
what is the elasticity of demand with respect to price moving from
point C to point A.  If the manufacturer comes to you with the
question, ?How can we increase revenues?? what recommendation would
you make?  Why?  If we had moved  from point B to A would your answer
change.  Why?

To graph the demand curve, plot price on the y-axis and quantity
demanded for each price on the x-axis.  The curve drawn between the
three points is the demand curve.  It slopes down and to the right. 
From left to right, and from top to bottom, the order of the points is
C, A, and B.

The midpoint formula is: [(Q2-Q1)/(Q1+Q2)/2]/[(P2-P1)/(P1+P2)/2].  The
result is the price elasticity of demand.  When using this equation,
all figures are treated as being positive numbers.  (Page 67)

From point C to point A, (350 -450)/(350+450)/2/(25-20)/(25=20)/2 =1.125

Because the price elasticity of demand is greater than one, demand is
considered to be price elastic, and a price decrease increases total
revenue.  You can check this by multiplying price times quantity at
points C and A. Total revenue at A is 9000, while total revenue at C
is only 8750.

Using the same formula, price elasticity from B to A equals (650 -
450)/(650+ 450)/2/(16 -20)/(16+ 20)/2 =1.64.  Price elasticity of
demand is greater, so a price decrease increases total revenue even
more than before.  Total revenue at B is 10,400.

The page referred to is found in "Economics" 14th edition by Samuelson
& Nordhaus, McGraw-Hill Inc., 1992.

Sincerely,

Wonko

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Request for Answer Clarification by linked2net-ga on 07 Apr 2004 12:45 PDT

Maybe you can explain to me why the answers are not negative... When I
calculated it, I got these results:

From C -> A
(450-350)/(800/2) ÷ (20-25)/(45/2)
1/4 ÷ -2/9 = -9/8 = -1.125

From B -> A
(450-650)/(1100/2) ÷ (20-16)/(36/2)
-4/11 ÷ 2/9 = -18/11 = -1.636

Just curious... Thanks For your help youve been great....

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Clarification of Answer by wonko-ga on 07 Apr 2004 13:08 PDT

As I mentioned in my answer, "When using this equation, all figures
are treated as being positive numbers."  This is just a standard
convention that has been adopted, which is the same as always taking
the absolute value of the result of the calculation.

Given the amount of material in the second paragraph, I am not
surprised you overlooked this explanation.  I hope this explains why
the values are not negative.

Sincerely,

Wonko