Therefre,sales revenue from computer chips decreases substantially,-12 percent, while the sales revenuefom disk drives is almost unchanged,-1 percent.Not that at the point on the demand curve where demand is unit elastic,total revenue is maximized Can you tell from the available information which product will generate the most revenue for the firm?If yes,why?If not,what additional information do you need? No.Although we know the responsiveness of demand to changes in price.we reed to know both quantities and prices ofthe products to determine total sale revenue 10.By observing an individual's behavior in the situations outlined below ter in the evant i come elasticities of demand for ch good (i.e. whether the good is normal or inferior).If you cannot determine the income elasticity,what additional information might you need? Bill spends all his income on books and coffee.He finds $20 while rummaging through a used paperback bin at the bookstore.He immediately buys a new hardcover book of poetry. Books are a normal good sin his consumption of books inereases with inco Coffee is a no al or neutral good since onumption of coffee did not fall I whe income increased Bill loses $10 he was going to use to buy a double espresso.He decides to sell his new book at a discount to his friend and use the money to buy coffee. Coffee is clearly a normal good. Being bohemian becomes the latest teen fad.As a result,coffee and book prices rise by 25 pere ent.Bill lowers his consumption of both goods by the same percentage Books and coffe are both normal goods since his response to a decline ir real income is to decrease consumption of both goods. Bill drops out of art school and gets an M.B.A.instead.He stops reading books and drinking coffee.Now he reads The Wall Street Journal and drinks bottled mineral water. His tastes have changed completely,and we do not know exactly how he income change We need more information regarding his new level of income,and relative prices of the goods to determine the income elasticities. 11.Suppose the income elasticity of demand for food is 0.5,and the price elasticity of demand is-1.0.Suppose also that Felicia spends $10,000 a year on food,the price of food is S2.and her income is $25.000. Therefore, sales revenue from computer chips decreases substantially, -12 percent, while the sales revenue from disk drives is almost unchanged, -1 percent. Note that at the point on the demand curve where demand is unit elastic, total revenue is maximized. b. Can you tell from the available information which product will generate the most revenue for the firm? If yes, why? If not, what additional information do you need? No. Although we know the responsiveness of demand to changes in price, we need to know both quantities and prices of the products to determine total sales revenue. 10. By observing an individual’s behavior in the situations outlined below, determine the relevant income elasticities of demand for each good (i.e., whether the good is normal or inferior). If you cannot determine the income elasticity, what additional information might you need? a. Bill spends all his income on books and coffee. He finds $20 while rummaging through a used paperback bin at the bookstore. He immediately buys a new hardcover book of poetry. Books are a normal good since his consumption of books increases with income. Coffee is a normal or neutral good since consumption of coffee did not fall when income increased. b. Bill loses $10 he was going to use to buy a double espresso. He decides to sell his new book at a discount to his friend and use the money to buy coffee. Coffee is clearly a normal good. c. Being bohemian becomes the latest teen fad. As a result, coffee and book prices rise by 25 percent. Bill lowers his consumption of both goods by the same percentage. Books and coffee are both normal goods since his response to a decline in real income is to decrease consumption of both goods. d. Bill drops out of art school and gets an M.B.A. instead. He stops reading books and drinking coffee. Now he reads The Wall Street Journal and drinks bottled mineral water. His tastes have changed completely, and we do not know exactly how he would respond to price and income changes. We need more information regarding his new level of income, and relative prices of the goods to determine the income elasticities. 11. Suppose the income elasticity of demand for food is 0.5, and the price elasticity of demand is –1.0. Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and her income is $25,000