BBBE1013 MICROECONOMICS

TUTORIAL 4
(THEORY OF MARKET)

A) CALCULATE THE PRICE ELASTICITY OF DEMAND FOR

BRANDONS TUTORING.

=
= -0.31

B) INTERPRET THE COEFFICIENT THAT YOU OBTAINED IN

PART (A).
The coefficient is 0.31, which is Ed<1. PED is inelastic.
A 1% increase in price will lead to a 0.31% decrease in Qd.

C) IS DEMAND FOR BRANDONS TUTORING PRICE ELASTIC, UNIT

ELASTIC, OR PRICE INELASTIC? SHOULD HE INCREASE THE PRICE?
WHICH RATE SHOULD HE CHARGE TO MAXIMIZE HIS REVENUE?

Since Ed is 0.31, hence it is Price inelastic.

Brandon should choose the rate at RM8 per hour and

26hours of tutoring per week to maximize his revenue.

D) BRANDON FINDS THAT HE CAN RAISE HIS RATE TO RM10 PER HOUR DURING THE WEEK BEFORE FINAL
EXAMS AND STUDENTS WILL CONTINUE TO DEMAND 26 HOURS OF TUTORING. EXPLAIN WHY THIS IS SO.

This is because students have limited time. Therefore, they

are willing to pay higher price due to inelastic in demand.