The current price of concert t-shirts is $20 each, and the company has been selling 400 per week. If price elasticity is 2.5 and the price changes to $21, how many t-shirts will be sold per week?
What will be an ideal response?
The percentage change in price is 1/20.5 = 0.0488. The percentage change in quantity is 0.0488 × 2.5 = 0.1220. The new quantity is such that 0.1220 = (400 ? Q2)/[(400 + Q2)/2]. Solving for Q2 we see 0.061(400 + Q2) = 400 ? Q2 which then yields 1.061 Q2 = 375.6, so that Q2 = 354.0.
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What will be an ideal response?