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Mnenie [13.5K]
3 years ago
7

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demande

d increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is:
Business
1 answer:
Wittaler [7]3 years ago
5 0

Answer:

The demand for candy bars is inelastic

Explanation:

The midpoint rule calculate the price elasticity of demand as percentage change in quantity divided by the percentage change in price:

<u>% change in quantity </u>

\frac{Q_2-Q_1}{ \frac{Q_2 + Q_1}{2} }  \times 100

The quantity demanded increased from 500 to 600. We have

Q_1 = 500 \: and \: Q_2 = 600

\implies \frac{600 - 500}{ \frac{600 + 500}{2} }  \times 100 \\  =  \frac{100}{ \frac{1100}{2} } \\  =  \frac{100}{550} \\  =  \frac{2}{11}

<u>% change in price</u>

\frac{P_2-P_1}{ \frac{P_2 + P_1}{2} }  \times 100

The price changed from 1 dollar to 0.8 dollars.

\frac{0.8 - 1}{ \frac{0.8 + 1}{2} } =  -  \frac{2}{9}

Price elasticity if demand is

\frac{ \frac{2}{11} \%}{  - \frac{2}{9} \%}  =  -  \frac{9}{11}  =  - 0.82

The negative sign tells us that there is an inverse relationship between price and quantity demanded.

Since 0.82 is less than 1, the demand for candy bars is inelastic

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a. The optimal pricing strategy will be one-shot Nash equilibrium in which “You” charge low price, “Your Rival” charge low price and then the payoff is ($0, $0)

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a. Determine your optimal pricing strategy if you and your rival believe that the new Highlander is a "special edition" that will be sold only for one year.

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