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mafiozo [28]
3 years ago
12

Jimmy's Peanut Farm wants to increase the quantity of peanuts that it sells by 1 percent. The price elasticity of demand for pea

nuts sold by Jimmy's Peanut Farm is 0.4. What is the percentage price cut that will achieve the​ firm's objective? The percentage price cut is _ nothing percent.
Business
1 answer:
slega [8]3 years ago
5 0

Answer: Jimmy's Peanut Farm has to decrease its prices by 2.5% in order to achieve a 1% increase in the quantity of peanuts it sells.

Jimmy's Peanut Farm can increase the quantity sold by 1% only when the demand for peanuts increases. Demand for peanuts will increase only when the price of peanuts decrease. The Price Elasticity of Demand measures the responsiveness of demand to a percentage change in price.

The formula for Price Elasticity of Demand (PED) is given by the formula:

\mathbf{PED = \frac{percentage change in quantity}{percentage change in price}}

We have:

Percentage increase in quantity               1%  or 0.01

Price Elasticity of Demand (PED)               0.40

Re-arranging the PED formula above we get,

\mathbf{percentage change in price}= \frac{percentage change in quantity}{PED} *100}

Substituting the values in the equation above we get,

{percentage change in price} = \frac{0.01}{0.4}*100 =2.5



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