Question

Ant-acid’s regular jumbo size price is $8.20 and sells 980 bottles. When discounted to $7.80, 1020 bottles are sold. If revenue at the regular price is $ 8,036 and the revenue at the discounted price is $7,956

1)Discounting this item made its revenue RISE/FALL

2)The above item’s price elasticity of demand is ELASTIC/INELASTIC

3)The above item’s price elasticity of demand has an absolute value LESS/GREATER than 1.0. 6)The item’s price elasticity of demand is calculated to be:

Answer 1

1) Discounting this item made its revenue fall

2) Price elasticity is inelastic as the revenue falls which means that the quantity demanded by consumers is less responsive to the price drop

3) The price elasticity is inelastic so its value is less than one.

4) Price elasticity = percentage change in demand/percentage change in price

=[Q2-Q1/(Q2+Q1/2)] / [P2=P1/(P2+P1/2)]

= [1020-980/(1020+980/2)] / [7.80-8.20/(7.80+8.20/2)]

= [40/1000] / [-0.40/8]

= 0.04/-0.05

= -0.8