Ali's Gyros operates near a college campus. Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut. He estimates that he would be able to sell 200 gyros per day at $3.50 each
a. Calculate the price elasticity of demand using the midpoint formula.
b. Calculate the change in revenue as a result of the price cut.
a. Price elasticity of demand = (120 - 200 ) / [(200 + 120 ) / 2] / (4.50 - 3.50 ) / 3.50 + 4.50 ) / 2] = (-80 / 160 ) / (1 / 4 ) = -2
b. Change in revenue = $700 - $540 = $160
You might also like to view...
Creative destruction:
A) leads to the benefit of all economic agents. B) is more likely in an economy with extractive institutions. C) leads to losses of all economic agents. D) is more likely in an economy with inclusive institutions.
Computers are a complement to computer software. Suppose the price of a computer falls. How does this fall in price affect the demand for computer software and the demand curve for computer software?
What will be an ideal response?
Michelle Palmisano has the rare talent to be a top rodeo rider, yet her winnings are not anywhere near the level of players in the major pro sports. The reason is that
a. anyone can ride in a rodeo b. demand and supply have simultaneously shifted by unknown amounts c. demand for her talent is not sufficient to support a high level of pay d. technology for saddles has not advanced for a long time e. consumer incomes have been increasing substantially
Explain the elasticities and absorption approaches to the BOT. What is the most notable shortcoming of these approaches?
What will be an ideal response?