Question

Sam advertises to sell cookies for $4 a dozen. She sells 50 dozen, and decides that she can charge more. She raises the price to $6 a dozen and sells 40 dozen. What is the elasticity of demand? Assuming that the elasticity of demand is constant, how many would she sell if the price were $10 a box?

Answer 1

First we need to find elasticity of demand, for finding elasticity of demand divide percent change in quantity by percent change in price

That is,

percentagr change in price= (6.00-4.00)÷(4. O0)=50%(. 05)

Percentage Change in quantity=(40-50)÷(50)= -20%(-0. 20).

Then,

Elasticity =(-20%÷50%)[-0.4]=0.4

0.4 is elasticity of demand

(Next we needt o find the quantity of 10$ for a box.)

Here also we use same formula,

Elasticity=0.4[percntage change in quantity%c÷percentage change in price=(10.00-4.00)÷(4.00)=150%(1.5)

Important one was when befor taking absolute value elasticity was -0.4 then we must use -0.4 calculatevthe change in quantity.

-0.4=percentage change in quantity(150%)÷(percentage change in quantity)=-60%(-0.6)

-0.6=(x-50)÷50

X=20

Therefore,the new demand at $10 she will sell 20 dozen cookies.