Question

A local paintball business receives total revenue of $10,000 per month when it charges $12 per person, and $15,000 in total revenue when it charges $8 per person. Over that range of prices, the business faces elastic, unitary, or inelastic demand?

Answer 1

Answer:

Elastic

Explanation:

For determining whether the business faces elastic, unitary, or inelastic demand, first we have to find out the change in price and change in quantity percentage which is shown below:

Quantity would be = $10,000 ÷ $12 = 833

                               = $15,000 ÷ $8 = 1,875

Now change in quantity would be

= ($1,875 - $833) ÷ ($833) × 100

= 125%

And the change in price would be  

= ($8 - $12) ÷ ($12) × 100

= -33.33%

As we can see that price is decreased by 33.33% which increases the revenue by 125% reflect the high change so the demand is elastic. If the change in price impacts the demand by less change then the demand is inelastic.  

And, if the price and demand are equal with respect to change then it would be unit elastic