The graphs below show the demand for appointments at Lacie?s luxury spa in a sub

Question

The graphs below show the demand for appointments at Lacie?s luxury spa in a suburb outside of Mason City, Iowa. There are two types of customers, those that are under the age of 65 and those that are OVER the age of 65. These two types of customers have different demand curves. Use the graphs below to answer the following questions. Assume that the salon is currently charging $150 per spa visit. a. What is the total revenue for the adults under 65 group? b. What is the total revenue for the adults OVER 65 group? c. By looking at the demand curves, it is obvious that one group has a more elastic demand curve. Which group has the more elastic demand curve? d. What is the absolute value of the price elasticity of demand in the adults under 65 market when moving from P=150 to P=100? e. What is the absolute value of the price elasticity of demand in the adults OVER 65 market when moving from P=150 to P=100? f. Lacie is thinking about raising the price per spa visit for adults under 65 to $200 and cutting the price to adults OVER 65 to $100. If she makes these price changes will she increase her total revenue? If yes, by how much?

Explanation / Answer

a>revenue =150*3=450$ b>revenue=150*12=1800$ c>the over 65 curve is more elastic d> -0.5 e>-1.5 f>the new customers = 2.5 , 100 respectively so the new revenue = 2.5*200 +100*18 =2300 old revenue =450+1800=2250 so the change increase the total revenues by 50 $ cheers :) elasticity =(P/Q)(1/slope)

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