Suppose, while rummaging through your uncles closet,you found the original painting ofDogs Playing Poker, avaluable piece of art. You decide to set up a display inyour uncles garage. The demand curve to see this valuablepiece of art is as shown in the diagram. What priceshould you charge if your goal is to maximize your revenuesfrom tickets sold? On a graph, show the inelasticand elastic regions of the demand curve.
Answer : To maximize revenue , price should be charge which corersponds to unitary price elastcity od demand . Because, If we charge a price which corresponds to elastic region , then if we decrease the price , revenue will increase . And,If we charge a price which corresponds to inelastic region , then if we increase the price , revenue will increase . Finally,If we charge a price which corresponds to unitary elastic region , then if we decrease or increase the price , revenue will not change ….
ing Geometricmethod :- Price elasticity of demand = Lower segment of demand curve / Upper segment of demand curve Hence , we get the following graph with various elasticity. Hence , we have unitary elasticity of demand at the mid point of demand curve . At thsi point price will be $6. Hence., In order to maximize revenue , price = $6.