Question

In: Economics

a. Ahmed runs a small business. In the first year he charged $45 and sold 1200...

a. Ahmed runs a small business. In the first year he charged $45 and sold 1200 units and in the second year he charged $30 and sold 1800 units. Calculate the price elasticity of demand (Use the midpoint method). If Ahmed plans to raise the price by 10%, indicate what would be a reasonable estimate of what will happen to the quantity demanded and to the total revenue?

b. The table below shows the change of the demand for good A when the price of good B increases from $450 to $540. Quantify the cross-price elasticity of the good A (use the mid-point method) and explain what does it show. Indicate if goods A and B complements or substitutes.

Price of the good A ($)

Price of the good B ($)

Quantity Demanded of the good A

150

450

2100

150

540

2500

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Rahul Sunny answered 1 year ago
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