You own a hot dog stand that you set up outside the student union everyday at lunchtime. Currently you are selling hot dogs for $3 each, and you sell 30 hot dogs a day. Yu are considering cutting the price to $2. The following graph shows two possible increases in the quantity sold as a result of your price cut. Use the midpoint formula to calculate the price elasticity of demand between these two prices on each of these demand curves. 1. Price (S per Hot dog $3 A $2 B C D' 30 40 60 Quantity (hot dogs per day) Elasticity D' (point A to point C): Elasticity D° (point A to point B): 2. Base your answers to the next three questions on question #1 above. a. How much will revenues change if demand is D', and will it increase or decrease? b. How much will revenues change if demand is D', and will it increase or decrease? c. Which demand is more elastic?
You own a hot dog stand that you set up outside the student union everyday at lunchtime. Currently you are selling hot dogs for $3 each, and you sell 30 hot dogs a day. Yu are considering cutting the price to $2. The following graph shows two possible increases in the quantity sold as a result of your price cut. Use the midpoint formula to calculate the price elasticity of demand between these two prices on each of these demand curves. 1. Price (S per Hot dog $3 A $2 B C D' 30 40 60 Quantity (hot dogs per day) Elasticity D' (point A to point C): Elasticity D° (point A to point B): 2. Base your answers to the next three questions on question #1 above. a. How much will revenues change if demand is D', and will it increase or decrease? b. How much will revenues change if demand is D', and will it increase or decrease? c. Which demand is more elastic?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:You own a hot dog stand that you set up outside the student
union everyday at lunchtime. Currently you are selling hot dogs for $3 each, and you sell 30 hot
dogs a day. Yu are considering cutting the price to $2. The following graph shows two possible
increases in the quantity sold as a result of your price cut. Use the midpoint formula to calculate
the price elasticity of demand between these two prices on each of these demand curves.
1.
Price (S per
Hot dog
$3
$2
D'
30 40 60
Quantity (hot dogs per day)
Elasticity D' (point A to point C):
Elasticity D (point A to point B):
2.
Base your answers to the next three questions on question #1 above.
a. How much will revenues change if demand is D', and will it increase or decrease?
b. How much will revenues change if demand is D², and will it increase or decrease?
c. Which demand is more elastic?
B.
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