Did i do this economics problem correct? check please?

Question

did i do this economics problem correct? check please?

it says... lets assume that if price tuition goes from $73 per credit to $83 per credit, then the quantity demanded by students will drop from 12 to 11 credits per semester. As an administrator find out if an increase in tuition will be good for revenue or not.

so i used the elasticity formula (Ed)

P1=$73 P2=$83

Q1=12 Q2=11

Q2-Q1

------------------

Q2 + Q1

------------

2

ED= __________

P2-P1

--------------

P2+P1

---------

2

i got -0.0869565

----------------

0.1282051

= -0.6782608

so is this inelastic, elastic, or unit elastic??? what does it mean in terms of responsiveness???

Answer 1

Revenue for 12 @ $73 is $876

Revenue for 11 @ $83 is $913

Unless the number of total students decreases it is good for revenue.

Answer 2

wow i have no clue, the more I think about it the more I wish I paid attention..  Keep it up

Answer 3

You have used middle-point method right:

Middle point for Q=(12+11)/2=11.5

Middle point for P=(73+83)/2=78

Change in P, ΔP =(83-73)=+10

Change in P, ΔP% =10/78≈0.128=+12.8%

Change in Q, ΔQ =(11-12)= -1

Change in Q, ΔQ% = -1/11.5≈ -0.08696≈ -8.7%

Elasticity E=ΔQ%/ΔP%= -8.7/12.8≈0.678

Conclusion: Demand is inelastic - it means that price can be increased even more (if their goal is ti maximize total revenue)

Old total credits=73*12=$876

New total credits=83*11=$913

Increase in revenue=913-876= $ +37