Asked by Le'Aisha Marshall on May 30, 2024
Verified
Joe's Pig Palace sells barbecue plates for $4.50 each, and serves an average of 525 customers per week. During a recent promotion, Joe cut his price to $3.50 and observed an increase in sales to 600 plates per week.
a. Calculate Joe's arc price elasticity of demand.
b. Joe is considering permanently lowering his price to $4.00 to increase revenue. How many plates should Joe expect to sell at the new price? Does the move make sense in the light of Joe's desire to increase revenue?
Arc Price Elasticity
A measure of the responsiveness of the quantity demanded or supplied of a good to a change in its price, over a specific price range.
Barbecue Plates
A traditional serving of various barbecued meats and accompanying side dishes, often enjoyed at social gatherings or restaurants specializing in barbecued cuisine.
- Acquire knowledge on the topic of price elasticity of demand and how its computation is applied to assorted items.
- Examine the consequences of price adjustments on consumer demand and expenditure levels.
Verified Answer
NT
Navneet ThaandiJun 04, 2024
Final Answer :
a.E = 
∙ 
E = 
∙ 
E = 
∙ 
E = 
= -0.533
b.Since 4.00 is within this arc, -0.533 can be regarded as the relevant elasticity. We will use $4.50 and 525 as the beginning price and quantity.
-0.533 =
∙ 
-0.533 = 
∙ 
-0.533 = 
= 
-0.533 = 
= -17 
+ 8925
-279.83 - 0.533
= -17 
+ 8925
16.47
= 9204.83 
= 558.88
Joe's move doesn't make sense since demand is inelastic. With inelastic demand, price and total expenditures move in the same direction. As he lowers price, total expenditures will also fall.
To verify:
Before Cut total expenditures = $4.50 × 525 = $2,362.50
After Cut total expenditures = $4.00 × 559 = $2,236.00
∙ E = ∙ E = ∙ E = = -0.533b.Since 4.00 is within this arc, -0.533 can be regarded as the relevant elasticity. We will use $4.50 and 525 as the beginning price and quantity.
-0.533 =
∙ -0.533 = ∙ -0.533 = = -0.533 = = -17 + 8925-279.83 - 0.533
= -17 + 892516.47
= 9204.83 = 558.88Joe's move doesn't make sense since demand is inelastic. With inelastic demand, price and total expenditures move in the same direction. As he lowers price, total expenditures will also fall.
To verify:
Before Cut total expenditures = $4.50 × 525 = $2,362.50
After Cut total expenditures = $4.00 × 559 = $2,236.00
Learning Objectives
- Acquire knowledge on the topic of price elasticity of demand and how its computation is applied to assorted items.
- Examine the consequences of price adjustments on consumer demand and expenditure levels.