You own a hot dog stand that you set up outside the student union every day at l

Question

You own a hot dog stand that you set up outside the student union every day at lunch time Currently,you are selling hot dogs for a price of $3, and you sell 30 hot dogs a day (point A on the diagram to the right). You are considering cutting he price to $2. The graph to the right shows two possible increases in the quantity sold as a result of your price cut Use the information in the graph (new quantities are given on the horizontal axis) to calculate the price elasticity between these two prices on each of the demand curves Use the midpoint formula to calculate the price elasticities On the demand curve containing the points "A" and B", the price elasticity of demand for a price cut from $3 to $2 isHint Inolude the negative sign and enter your response rounded to two decimal places) D2 On the demand curve containing the points "A" and "C" the price elasticity of demand for a price cut from $3 to $2 is(Hint: Include the negative sign and enter your response rounded to fwo decimal places) Di 1020 30 40 3060 Quantity (hot dogs per day)

Explanation / Answer

Point A to B Change in price: 3-2 = -1 Average price (3+2)/2 = 2.5 % change in price: -1 /2.5 *100 =-40% Change in demand: 63-30 = 33 Average demand (30+63)/2 = 46.50 % change in demand: 33/46.50 *100 = 70.97% Price elasticity of demand: % change in demand/ % change in pricec 70.97% / -40% = -1.77 Point A to C: Change in price: 3-2 = -1 Average price (3+2)/2 = 2.5 % change in price: -1 /2.5 *100 =-40% Change in demand: 34-30 = 4 Average demand (30+34)/2 = 32 % change in demand: 4 /32 *100 = 12.50% Price Elasticity of demand: % change in demand/ % change in price 12.50 % / -40% = -0.31

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