Question

Consider the market for a breakfast cereal. The​ cereal's price is initially ​$4.00 and 60 thousand boxes are demanded per week.

The company that produces the cereal is considering raising the price to ​$4.50. At that​ price, consumers would demand 55 thousand boxes of cereal per week.

What is the price elasticity of demandLOADING... between these prices using the midpoint formula LOADING...​?

The price elasticity of demand using the midpoint formula is

Answer 1

Answer:

- 0.73

Explanation:

The computation of the price elasticity of demand using mid point formula is shown below:

= (change in quantity demanded ÷ average of quantity demanded) ÷ (percentage change in price ÷ average of price)  

where,  

Change in quantity demanded is

= Q2 - Q1

= 55,000 - 60,000

= -5,000

And, average of quantity demanded is

= (55,000 + 60,000) ÷ 2

= 57,500

Change in price is

= P2 - P1

= $4.50 - $4

= $0.50

And, average of price is

= ($4.50 + $4) ÷ 2

= $4.25

So, after solving this, the price elasticity of demand is - 0.73