Question

In: Accounting

Deman- Related Pricing Calculation a. Calculate the price elasticity of demand for a restaurant’s pizza under...

Deman- Related Pricing Calculation

a. Calculate the price elasticity of demand for a restaurant’s pizza under the

following conditions:

Old price: $8

Old quantity:

1,000/month

Total Revenue: $8,000

New price: $10

New quantity: 900/month

Total revenue: $9,000

b. If the new quantity sold per month were 700 (instead of 900), what would be

the price elasticity of demand?

Solutions

Expert Solution

A). Pric elasticity of demand

percentage change in quantity demanded÷ percentage change in price

percentage change in quantity demenaded=((previous quantity

- new quantity)÷ previous quantity))*100 .

Percentage change in price= ((previous price-new price)÷

previous price))*100

Percentage change in quantity= ((1000-900)/1000))*100=10%

Percentage change in price=((8-10)/8))*100= 25%

Note. Please ignore minus sign.You can put minus sign before formula to eliminate the minus sign in final answer or can ignore minus sign

Price elasticity of demand= 10÷25=0.4

Price elasticity demand is less than 1 means product is fall under less than unitary price elasticity of demand. It shows demand of product is inelastic nature. Demand of product is not very much responsive to price of product.becaus 0.40<1.

B).if qauntity sold 700 instead of 900

Newpercentage change in price=

((700-1000)÷1000))*100=30%

Percentage change in price is calculated as above 25%

Price elasticity of demand= 30/25= 1.2

1.2 is greater than 1 which is unitary price elasticity of demand.it shows there will be more change in quantity demand due to less change in price. Or we can say 1 $ change in price will lead 1.2 units change in demand.quantity demand is more responsive to price change.


Related Solutions

Price Elasticity of Demand. Discuss the price elasticity of demand. Is it directly related to the...
Price Elasticity of Demand. Discuss the price elasticity of demand. Is it directly related to the availability of suitable substitutes for a product? Please integrate the Bible passages in your discussion.
Determine the price elasticity of demand, the cross-price elasticity of demand or the income elasticity in...
Determine the price elasticity of demand, the cross-price elasticity of demand or the income elasticity in the following scenarios a.  Consider the market for coffee. Suppose the price rises from $4 to $6 and quantity demanded falls from 120 to 80. What is price elasticity of demand? Is coffee elastic or inelastic? b.  John’s income rises from $20,000 to $22,000 and the quantity of hamburger he buys each week falls from 2 pounds to 1 pound. What his income elasticity? Is hamburger...
The price elasticity of the demand for gasoline is .02. The price elasticity of demand for...
The price elasticity of the demand for gasoline is .02. The price elasticity of demand for gasoline at Joe’s service station is 1.2. Explain what might account for the difference in elasticities.
The price elasticity of demand for product A is 2.32. The price elasticity of demand for...
The price elasticity of demand for product A is 2.32. The price elasticity of demand for product Z is 0.12. This difference could be due to the fact that A. there are many good substitutes for product A and few substitutes for product Z. B. there are many good substitutes for product Z and few substitutes for product A. C. product A is a necessity and product Z is a luxury. D. product Z is a necessity and product A...
a. How do you calculate a commodity's price elasticity of demand? b. If a commodity's elasticity...
a. How do you calculate a commodity's price elasticity of demand? b. If a commodity's elasticity is -1.25, is its price elasticity elastic or inelastic? Explain. What does that imply about the relative changes in price and quantity?
Define own-price elasticity of demand, and explain how it is related to the demand curve. Provide...
Define own-price elasticity of demand, and explain how it is related to the demand curve. Provide four reasons why the demand for medical services is likely to be inelastic with respect to its price.
Calculate the price elasticity of demand for each price change. Note, you will begin with the...
Calculate the price elasticity of demand for each price change. Note, you will begin with the change in price from $2.25 to $3.25. Price Demand Supply $2.25 20 2 $3.25 17 5 $4.25 14 8 $5.25 11 11 $6.25 8 14 $7.25 5 17 $8.25 2 20 Assume a merchant was thinking of decreasing the price from $4.25 to $3.25. Based on your calculations, is the price decrease a good idea for the merchant? Please explain why. How much would...
Discuss factors affecting the Price Elasticity of Demand, Income Elasticity of Demand, and Cross-price Elasticity of...
Discuss factors affecting the Price Elasticity of Demand, Income Elasticity of Demand, and Cross-price Elasticity of Demand for LUX, a five-star resort in the Maldives. Identify any unique amenities of the resort and forms of transportation to the remote islands. Discuss why forecasting is critical for the success of the one island, one resort concept. Mention the importances of demand (i.e. effective demand, elasticity, inelasticity) and price while tying in with the topic. At least 200 words (important). Thanks in...
How does the price elasticity of demand impact the firm’s pricing decisions and revenue growth?
How does the price elasticity of demand impact the firm’s pricing decisions and revenue growth?
How does the price elasticity of demand impact a firm’s pricing decisions and revenue growth?
How does the price elasticity of demand impact a firm’s pricing decisions and revenue growth?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT