Hi, Firstly thank you for the great lecture. I have a question about the price elasticity of demand. At the very last bit of the lecture, PED marked as -32. You told that the price is very elastic to the changes in price as a slight drop in price resulted in 100% increase in demand. I understand this and makes sense. But why my study book says PED > 1 indicates elastic demand. Here we have a minus PED so doesn’t that mean inelastic demand?

One question I had is that in your notes you mention that the optimum selling price is where MR=MC.

So in our example, would it be fair to say that 15 is not the actual optimum selling price as MR still > than MC so it would be slightly less that 15 and of course higher that 14,5 so around 14,8 let’s say?

Yes, you are correct. However when the question is tabular as in this example, you have to assume that the only possible selling prices are those given in the question (and therefore 14.8 would not be possible).

You will see in the next lecture that there can also be questions where any selling price is allowable in which case we use equations and do find the exact price at which MR = MC.

Nedi: I do explain this in the next lecture on pricing. It is because the only selling prices ‘allowed’ in this example are those stated in the question.

In the notes. it says that optimum selling price occurs at the point where MC=MR. It is a bit confusing because based on the example, MC is not equal to MR at optimum selling price of $15p.u . Can you elaborate on this? thanks

Thanks John. Good presentation and straightforward. This approach shows the relationship between price and demand and the effect on profit. The optimum SP is the price that maximize profit or where MR=MC. If MR is greater than MC then it is worth selling the product and if MC is greater than MR then it is not worth selling it. The PED is well explained and simply to understand.

You will have to say which bit of the answer in the notes that you are not clear about, because the approach at $15 is exactly the same as the approach I work through in the lecture at $16.

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pateladam says

What is the answer for the PED for $15?

John Moffat says

10.

The answer is in the free lecture notes (along with the answers to all of the examples)!! You can find the answers by checking the contents page.

tugcem says

Hi,

Firstly thank you for the great lecture.

I have a question about the price elasticity of demand. At the very last bit of the lecture, PED marked as -32. You told that the price is very elastic to the changes in price as a slight drop in price resulted in 100% increase in demand. I understand this and makes sense. But why my study book says PED > 1 indicates elastic demand. Here we have a minus PED so doesn’t that mean inelastic demand?

Thank you

John Moffat says

When discussing elasticity we ignore the minus sign 🙂

tugcem says

Thank you so much John, I watched the video again and made my revision. I love your lectures, very helpful and easy to follow.

kkipouros says

Hello Sir,

First of all many thanks for all these lectures!

One question I had is that in your notes you mention that the optimum selling price is where MR=MC.

So in our example, would it be fair to say that 15 is not the actual optimum selling price as MR still > than MC so it would be slightly less that 15 and of course higher that 14,5 so around 14,8 let’s say?

Best,

Kostas

John Moffat says

Yes, you are correct. However when the question is tabular as in this example, you have to assume that the only possible selling prices are those given in the question (and therefore 14.8 would not be possible).

You will see in the next lecture that there can also be questions where any selling price is allowable in which case we use equations and do find the exact price at which MR = MC.

kkipouros says

Understood and thank you very much for your reply sir!

Best regards,

Kostas

John Moffat says

Nedi: you are welcome 🙂

nedi says

Ok I get it now. Thank u so much!

John Moffat says

Nedi: I do explain this in the next lecture on pricing. It is because the only selling prices ‘allowed’ in this example are those stated in the question.

nedi says

In the notes. it says that optimum selling price occurs at the point where MC=MR. It is a bit confusing because based on the example, MC is not equal to MR at optimum selling price of $15p.u . Can you elaborate on this? thanks

ruhinaahmadzai says

sir, your lectures are just amazing….

John Moffat says

Thank you for your comment 🙂

alie2018 says

Thanks John. Good presentation and straightforward. This approach shows the relationship between price and demand and the effect on profit. The optimum SP is the price that maximize profit or where MR=MC. If MR is greater than MC then it is worth selling the product and if MC is greater than MR then it is not worth selling it. The PED is well explained and simply to understand.

John Moffat says

Thank you for your comment 🙂

jenny91 says

please do example 3 – second question- I don’t understand the answer in the notes based on selling price $15

thank you.

John Moffat says

You will have to say which bit of the answer in the notes that you are not clear about, because the approach at $15 is exactly the same as the approach I work through in the lecture at $16.