Question

In: Economics

Sam advertises to sell cookies for $4 a dozen. She sells 50 dozen, and decides that she can charge more.

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?

Expert Solution

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.

Rahul Sunny answered 2 years ago

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