Question

Suppose the (absolute value of) price elasticity of demand for bouquets of flowers is 4.0. You are charging $8 per bouquet. If you want to increase the quantity of bouquets you sell by 20 percent, what price should you charge? (show all your work) [hint: it should help to make use of the midpoint formula] (10 points)

Answer 1

Ans:

calculation of price to be charged to increase the quantity of bouquets sold by 20 per​cent.

Price elasticity of demand = % change in quantity demand / % change in price

4 = 20% / % change in price

% change in price​ = 20% / 4

% change in price = 5%

a 5% decrease in price will increase the quantity of bouquets sold by 20 percent.

Price to be charged = $8 - ($8 * 5%)

= $8 - $0.4

= $7.6

Hence a price of $7.6 per bouquet should be charged to increase the quantity of bouquets sold by 20 percent.