Question

Table below shows the demand for haircuts from seniors and other customers on an average weekday in the local hairdressing shop.

Price of Haircut	Quantity Demanded by Seniors	Quantity Demanded by Other Customers
$24	1	9
22	4	10
20	7	11
18	10	12
16	13	13
14	16	14
12	19	15
10	22	16
8	25	17
6	28	18

a) Between the prices of $20 and $24, which of the two demands is more elastic? Round your answers to 2 decimal places.

The price elasticity of demand for seniors is   

The price elasticity of demand for other customers is   

The elasticity of demand is greater for  (Click to select)  seniors  other customers

b) What price would give the shop the greatest sales revenue?

Answer 1

a.

Price elasticity of demand by seniors (Midpoint method)

Price elasticity of demand = %age change in QD / %age change in Price

Where,

%age change in QD = (Q2 – Q1) / [(Q2 + Q1) / 2]

%age change in Price = (P2 – P1) / [(P2 + P1) / 2]

Price elasticity of demand by other customers

so, between price 20 $ and 24 $, the demand for senior citizens is more elastic.

For senior citizens PED between price 20-22 $ is -5.73 and between 22-24$ PED is -13.80

For other customers PED between price 20-22 $ is -1 and between 22-24$ PED is -1.21.

The elasticity of demand is greater for senior citizens.

b. The total revenue is maximized at price of 14 $

TR = (demand by senior + other customers) * price