Question

Using the midpoint method, find the cross-price elasticity of demand for FedEx and UPS overnight shipping if the price of FedEx increased from $65 to $75 and the quantity demanded of UPS went up from 1.2 million packages per day to 1.3 million. Round to two decimal places as necessary.

Answer 1

Answer:

Cross price elasticity using midpoint method = 0.56

Step-by-step explanation:

Using the mid-point method

Cross-price Elasticity of Demand = % change in Quantity demanded of UPS

                                                          % change of price of FedEx

%change in Quantity demanded of UPS

using Mid-point method                          = Q2-Q1            × 100

                                                                     (Q1+Q2)÷ 2

                                      = 1.3-1.2             × 100

                                        (1.2+1.3)÷2

                                     = 0.1       × 100

                                       1.25

                                     = 8%

% change in price of FedEx

using midpoint method    = P2-P1            × 100

                                             (P1+P2)÷ 2

                                          = 75-65           × 100

                                            (65+75)÷2

                                          = 10     × 100

                                             70

                                          = 14.28%

Cross-price Elasticity of Demand =  8% ÷ 14.28%

using midpoint method                = 0.56