Question

Consider the market for a breakfast cereal. The cereal's price is initially $3.40 and 66 thousand boxes are demanded per week. The company that produces the cereal is considering raising the price lo $3 90. At that price, consumers would demand 61 thousand boxes of cereal per week. What is the price elasticity of demand between these prices using the midpoint formula? The price elasticity of demand using the midpoint formula is ________.

Answer 1

Answer:

-0,515 Which it means that a change in 1% of the price would mean a negative change of 0,515 in quantities.

Explanation:

In this case, a change in 14,71% of the price (3.40 to 3.90) would mean a change in 5,000 units (66,000*14,71%*0,515=5,000). This is obtain by the mid point formula: [(3,90-3,40)/3,40]/[(61,000-66,000)/66,000]=0.515