TTV's managers estimate that a 50% increase in price would cause an 80% reduction in the quantity of product sold. Total fixed costs for the product are $5,000 and total variable costs are $4,000, based on production of 400 units. The following values may be useful: TTV's price elasticity of demand is
A) -3.973
B) -0.252
C) +0.322
D) +3.108

Question

TTV's managers estimate that a 50% increase in price would cause an 80% reduction in the quantity of product sold. Total fixed costs for the product are $5,000 and total variable costs are $4,000, based on production of 400 units. The following values may be useful:  TTV's price elasticity of demand is
A) -3.973 
B) -0.252 
C) +0.322 
D) +3.108

Quizplus · Accepted Answer

Using the midpoint formula, we can calculate the price elasticity of demand as follows:

Elasticity = (80%/50%) x ($50/$75) = -3.973

Given that the elasticity value is negative, we can conclude that TTV's product is price-sensitive i.e., consumers are responsive to price changes.

TTV's Managers Estimate That a 50% Increase in Price Would