1) Please Explain with detail explanation why the answer is C Suppose that the q

Question

1) Please Explain with detail explanation why the answer is C

Suppose that the quantity of Pepsi demanded declines from 103,000 gallons per week to 97,000 gallons per week as a consequence of a 10 percent increase in the price of Pepsi. The price elasticity of demand (in absolute value) A.  1.66.

B.  6.00.

C.  0.60.

D.  1.40.

2) Please explain why the answer is A, I arrived to the answer and a negative magnitude of elasticity. If the magnitude of elasticity is negative, please explain why it is not inelastic because inelastic is the magnitude of elasticity less than one

If Pizza Hut raises the price of a slice of pizza from $3.00 to $3.25, the quantity demanded decreases from 1,500 slices per week to 1,300 slices per week.  The demand for slices of pizza is ________ and the total revenue received by this Pizza Hut ________.

A. elastic? decreases

B. inelastic? decreases

C. elastic? increases

D. inelastic? decreases

Explanation / Answer

1. The price elasticity of demand is given as e = (dQ/Q)/(dP/P)

Here dQ = 103000 - 97000 = 6000

Q = 103000

dP/P = 10/100 = 0.1

Hence e = (6000/103000)/0.1 = 0.59 (approximately 0.6)

2. The demand is elastic because as price of the product increases, the demand decreases.

Initial revenue = 1500x3 = 4500

Final revenue = 1300x3.25 = 4225

Hence revenue decreases

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