Question

A firm's demand curve is P = 1 – 2Q. The firm has a current price of R1 000 and it sells 100 units per day. What is the firm's price elasticity of demand? 1. – 1 2. – 2 3. – 5.0 4. Given the information, it cannot be determined.

Answer 1

Assuming he firm has a current price of R1 000 and it sells 100 units per day. The firm's price elasticity of demand is -5.

Price elasticity of demand

Given:

P = 1 - 2Q

Hence:

Q = 0.5 - 0.5P

Price elasticity of demand (Ed)= -0.5×1000/100

Price elasticity of demand (Ed)= -5

Based on the above calculation the demand is elastic at the price of -5.

Therefore the firm's price elasticity of demand is -5.

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