Perfectly Elastic Demand Curve

Finance – The Elastic Demand Curve
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Attempted Solution
A customer survey shows that 40% of the sample customers will pay $100 for a product. Assuming that the demand curve is a straight line over the mid-range and that a given product or commodity has a variable cost of $20 per unit, where the price should be set to achieve maximum total income.
Graph illustration
A perfectly elastic demand curve
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Quantity Demanded
40% of the customers are willing to pay $100.The variable cost is $20 then the net income is $80.Thus, to obtain the maximum income, then the business should set the highest possible price in order to maximize net income. Assuming the curve is a straight line over the mid-range, and then the demand of a commodity is perfectly inelastic which means that a rise in the price of a product or a commodity does not affect the product demanded, thus the term perfectly inelastic. Therefore if we assume maximum utility which is 1 for the customers as the price has no effect on the quantity demanded, then,
P1/P2= QD1/QD2
Thus, assuming 40% of the market willing to pay $100 represents 40% demand, then the rest of the market demand is 60%.
Thus, $100/P2= 40%/ 60%
Thus, 40% *p2= 60%* 100
Thus p2= ((60%* 100)/ 40%))
Thus P2= $ 150
At a higher price of $150, the demand does not change given the perfectly inelastic demand curve, and thus there is maximum net income given the same amount of variable cost per product ($20).

Price elasticity of demand = the percentage change in demanded/ the % change in price CITATION Jim15 l 1033 (Woodruff, 2015)PED= 0/50%
PED=0
The PED is less than one, in fact, it is zero (0) which means that inflation in a given product does not affect or change the product’s demand.
Reference
BIBLIOGRAPHY l 1033 Woodruff, J. (2015). Price Elasticity & Total Revenue – Finding the Relationship. The Small Business Chron, Retrieved from http://smallbusiness.chron.com/relationship-between-price-elasticity-total-revenue-24544.html