Question

Use a cell reference or a single formula where appropriate in order to receive full credit. Do not copy and paste values or type values, as you will not receive full credit for your answers. The marketing department of Acme Inc. has estimated the following demand function for its popular carpet deodorizer, Freshbreeze: Q = 100 – 5p, where Q is the quantity of an 8 oz box sold (in thousand units) and p the price of an 8 oz. box.
	Q	=	100	-	5	p

Use Excel to calculate the point price elasticity of demand, ε, for price, p = 1, 2, 3,…, 19.

Answer 1

Price Elasticity of Demand refers to the degree of change in quantity demanded of a product due to change in price of the product. In other words how much will the quantity demanded of a product changes due to increase or decrease in its price.

Quantity Demanded = 100 - 5*P

This means that when price is $ 1, the Quantity Demanded is

= 100 - 5*1

= 95 Units

when price is $ 2, the Quantity Demanded is

= 100 - 5*2

= 90 Units

So change is Quantity Demanded to Change in Price is as follows:

= (90 - 95) / (2 - 1)

= -5

Therefore with every rise in price by $ 1, the quantity demanded falls by 5 units.

Price Elasticity of Demand is calculated using the below formula:

= (Change in Quantity Demanded / Change in Price) * (Price / Quantity)

=

We can calculate the desired results using the above data in excel sheet as follows:

Formulas used in the Excel Sheet are:

So, the point price elasticity of demand at all the prices from 1 to 19 is calculated as shown above,

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