If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then
A) the price elasticity of demand is 0.44.
B) A is a complementary good.
C) the price elasticity of demand is 2.25.
D) A is an inferior good.

Question

Quizplus · Accepted Answer

To calculate the price elasticity of demand, we use the formula:

Price Elasticity of Demand = ((Q2 - Q1) / ((Q2 + Q1) / 2)) / ((P2 - P1) / ((P2 + P1) / 2))

where
Q1 = 3,000 units
Q2 = 5,000 units
P1 = $10 per unit
P2 = $8 per unit

Plugging the values in the formula, we get:

Price Elasticity of Demand = ((5,000 - 3,000) / ((5,000 + 3,000) / 2)) / (($8 - $10) / (($8 + $10) / 2))

Price Elasticity of Demand = (2,000 / 4,000) / (-$2 / $9) = 2.25

Therefore, the price elasticity of demand is 2.25.

If a Firm Can Sell 3,000 Units of Product a at $10