Answered: the point price elasticity of demand at…

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter7: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 13CQ: Suppose Erin, the owner-manager of a local hotel projects the following demand for her rooms: a....

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Transcribed Image Text:In the market for alcoholic beverages, a business called Drive-thru Bottle Shop offers a variety of different bottled wines to their customers. They stock many brands, some being very well-known, with others less well known. Answer the following questions:a. If a wine has significant brand recognition and customer loyalty, then the point price elasticity of demand at a given price for this wine would elastic than the point price elasticity be of demand of a similar wine where the wine maker has little brand recognition and customer loyal, ceteris paribus. Type L for Less, M for More or E for Equally. b. The demand for a particular wine sees customers purchase 6,000 bottles of wine when the price is $7.99 per bottle, and only 5,000 bottles when the price was increased to $8.49 by the Drive-thru Bottle Shop management. What is the price elasticity of demand using the mid-point formula? Answer to the nearest two decimal places. C. Assume the Drive-thru Bottle Shop is trying to maximise revenue. Considering your findings in part b., did the Drive-thru Bottle Shop's decision to increase the price agree with increasing revenue? Type Y for Yes, N for No, or U for Unknown.

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