Chapter 9R, Problem 4MCQ

To determine

The conclusion by using midpoint method if the price of pizza increases from 0.75 to $1.25 a slice where sales in April decline from 1,050 to 950 slices.

Explanation of Solution

Price elasticity of demand by using midpoint method:

  $\begin{array}{c}\text{Price elasticity of demand = }\frac{\left(\text{Q2 - Q1}\right)\text{ / }\left[\left(\text{Q2 + Q1}\right)\text{ / 2}\right]}{\left(\text{P2 - P1}\right)\text{ / }\left[\left(\text{P2 + P1}\right)\text{ / 2}\right]}\\ \text{= }\frac{\left(\text{1050 - 950}\right)\text{ / }\left[\left(\text{1050 + 950}\right)\text{ / 2}\right]}{\left(\text{1}\text{.25 - 0}\text{.75}\right)\text{ / }\left[\left(\text{1}\text{.25 + 0}\text{.75}\right)\text{ / 2}\right]}\\ \text{= }\frac{\text{100 /1000}}{\left(\text{0}\text{.5}\right)}\\ \text{= }\frac{\text{0}\text{.1}}{\left(\text{0}\text{.5}\right)}\\ \text{= 0}\text{.2}\end{array}$

Therefore, the conclusion would be the price elasticity of demand is 0.2 and the correct answer is option c.

Economics Concept Introduction

Introduction:

Midpoint method is used to calculate elasticity by using the average percentage change in quantity and average percentage change in price.