Question

one of the growers is excited by the price increase caused by the blight because she believes it will increase revenue in this market. as an economics student, you can use elasticities to determine whether this change in price will lead to an increase or decrease in total revenue in this market. using the mid - point method, the price elasticity of demand for apples between the prices of $15 and $18 per bushel is 0.61, which means demand is inelastic between these two points. therefore, you would tell the grower that her claim is correct, because total revenue will increase as a result of the blight. confirm your previous conclusion by calculating total revenue in the apple market before and after the blight. enter these values in the following table. total revenue (millions of dollars) before blight after blight

Explanation:

Step1: Recall revenue - elasticity relationship

When demand is inelastic (price - elasticity of demand $E_d< 1$), an increase in price leads to an increase in total revenue. Here, the price - elasticity of demand for apples between the prices of $\$15$ and $\$18$ per bushel is $0.61$ (inelastic since $0.61<1$).

Step2: Analyze the effect of price increase

The blight causes a price increase. Since demand is inelastic, total revenue will increase.

Answer:

Before Blight: (No data provided to calculate, but conceptually we know the relationship).
After Blight: Total revenue will increase. So the grower's claim that the price increase due to blight will increase revenue is correct because the demand is inelastic (price - elasticity of demand = 0.61).