### Understanding Price Elasticity of Demand Using the Midpoint Method#### Explanation of the Graph:The graph above represents a demand curve analysis for two different demand lines: $D_1$ (in blue) and $D_2$ (in red). The vertical axis $P$ represents the price, while the horizontal axis $Q$ represents the quantity demanded.Important points on the graph:- Point $A$ at coordinates (100, $5) on demand curve $D_1$.- Point $B$ at coordinates (80, $10) on demand curve $D_1$.- Point $C$ at coordinates (90, $10) on demand curve $D_2$.#### Calculating Price Elasticity of Demand Using the Midpoint Method:Use the midpoint formula to calculate the price elasticity of demand between points $A$ and $B$ on $D_1$. The midpoint formula is given by:\[\text{Price Elasticity of Demand} = \frac{(Q_2 - Q_1)}{(Q_2 + Q_1) / 2} \div \frac{(P_2 - P_1)}{(P_2 + P_1) / 2}\]Where:- $(Q_1, P_1)$ = (100, $5) at point $A$.- $(Q_2, P_2)$ = (80, $10) at point $B$.Now, substitute the values into the formula:\[\text{Price Elasticity of Demand} = \frac{(80 - 100)}{(80 + 100)/2} \div \frac{(10 - 5)}{(10 + 5)/2}\]\[\text{Price Elasticity of Demand} = \frac{-20}{90} \div \frac{5}{7.5}\]\[\text{Price Elasticity of Demand} = -0.222 \div 0.666\]\[\text{Price Elasticity of Demand} = -0.333\]Hence, the price elasticity of demand from point $A$ to point $B$ on $D_1$ is $-0.333$.This formula helps in understanding how

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Answered: Use the midpoint method to compute the…

Use the midpoint method to compute the price elasticity on D1. $10 B $5 A D2 80 90 100 From point A to point B, the price elasticity is:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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