Harry's Barber Shop increased its total monthly revenue from $1,500 to $1,800 when it raised the price of a haircut from $5 to $9.The price elasticity of demand for Harry's Haircuts is
A) 0.567.
B) 0.700.
C) 1.429.
D) 2.200.

Question

Quizplus · Accepted Answer

Using the midpoint formula: 
% change in price = [(9-5)/((9+5)/2)]*100% = 44.44%
% change in quantity = [(1800-1500)/((1800+1500)/2)]*100% = 21.43%
Price elasticity of demand = %change in quantity demanded / % change in price 
= 21.43% / 44.44%
= 0.48 (approx.)
The price elasticity of demand is less than 1, indicating that the demand for haircuts at Harry's Barber Shop is relatively inelastic. Therefore, the correct choice is B.

Harry's Barber Shop Increased Its Total Monthly Revenue from $1,500