Question

Consider the market for a breakfast cereal. The​ cereal's price is initially ​$3.403.40 and 6666 thousand boxes are demanded per week. The company that produces the cereal is considering raising the price to ​$3.903.90. At that​ price, consumers would demand 6161 thousand boxes of cereal per week. What is the price elasticity of demand these prices using the midpoint?

Answer 1

Answer:

Elasticity of demand is -0.6 or -60%

Explanation:

Elasticity of demand measure the responsiveness of demand against the change in price of the product.

Using mid point method

Change in Demand = ( D2 - D1 ) / [ ( D2 + D1 )/2 ]

Change in Demand = ( 6161 - 6666 ) / [ ( 6161 + 6666 )/2 ]

Change in Demand = -505 / 6413.5

Change in Demand = -0.07874

Change in price = ( P2 - P1 ) / [ ( P2 + P1 )/2 ]

Change in price = ( 3903.9 - 3403.4 ) / [ ( 3903.9 + 3403.4 )/2 ]

Change in price  = $500.5 / $3653.65

Change in price  = 0.136986

Elasticity of Supply =  -0.07874 / 0.136986

Elasticity of Supply = -0.5748 = -0.6