14. Skip\'s Sealcoating Service increased its total monthly revenue from S12,000
ID: 1141794 • Letter: 1
Question
14. Skip's Sealcoating Service increased its total monthly revenue from S12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is b. 0.47 c. 1.12 15. If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by a. 1.66%, and aluminum foil sellers' total revenue will increase as a result. b. 1.66%, and aluminum foil sellers' total revenue will decrease as a result. inum foil sellers' tota revenue will increase as a result. d. 3.48%, and aluminum foil sellers' total revenue will decrease as a result.Explanation / Answer
Ans:
14) Option B
Price elasticity of demand = 0.47
Analysis
Quantity demanded when price is $600 = $12000 / $600
= 20
Quantity demanded when price is $600 = $13500 / $750
= 18
Price elasticity of demand = % change in demand / % change in price
% change in demand = (18 - 20) / 20
= -2 / 20
= -0.1 or 10%
% change in price = ($750 - $600) / $600
= $150 / $600
= 0.25 or 25%
Price elasticity of demand = -10% / 25%
= -0.4
15) Option C
3.48% and aluminum foil sellers total revenue will increase as a result.
Analysis
Price elasticity of demand = % change in demand / % change in price
% change in demand = Price elasticity of demand * % change in price
= 1.45 * 2.4%
= 3.48%
Hence % change in demand is 3.48%.
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