please answer number 3 a b LE Aaed a normal proite Explain why or why not 3. The

Question

please answer number 3 a b

LE Aaed a normal proite Explain why or why not 3. The president of the Micro Brewing Corporation asks you, as company's economist, to forecast changes in consumer beer purchases associated with a proposed price change. You conduct a survey and find that if the price of a six-pack of beer rises from $3.50 to $4.50, the quantity demanded will decrease from 2,500 to 1,800 units a month. Should the brewery raise its price? Did the owner of the beer company make a good decision in raising the price of beer? Explain the economic basis for this recommendation to the president. In order to answer this question, you must: a. Calculate the elasticity of demand for beer. Is demand for beer elastic inelastic or unit elastic? Why? b. Calculate total revenue for when the price is $3.50 and quantity demanded is 2,500 and $4.50 and quantity demanded for beer is 1,800 units a month

Explanation / Answer

%change = Final Value - Initial Value *100 / Initial Value

Elasticity is close to one. It means demand is unitary elastic. It will change by the same proportion as price.

But this decision reduced total revenue.

In this case, there was no need to increase the price.

The decision is not good because it reduced revenue.

p Q %Change in Q %Change in P E=*dQ/*dP TR=P*Q Initial 3.5 2500 8750 Final 4.5 1800 -28 28.57 -0.98 8100

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