Explore BrainMass

Applied Math on determining price elasticity of demand

The marketing team for a restaurant wants to determine the price elasticity of demand coefficient for its steak dinner.
It priced its dinner at different price points in local restaurants to see how many would be sold at different prices. The following is the result of the price trials:

Price Quantity
$15 1000
$10 2000

The formula for calculating the coefficient of the price elasticity of demand is:
Percent change in qty / percent change in price (midpoint formula).
Remember to use your rules of algebra when calculating this problem.
Calculations in parentheses first.
Divisions and multiplication next
Addition and substraction last.

[(Q Demand (new) - Q Demand (old)]/ [Q Demand (old) +Q Demand (new)]*2
[Price (new) - Price (old)]/ [Price (old) +Price (new)]*2

What is the coefficient?
Does this indicate that the meals are price elastic or inelastic?

Solution Preview

Price-elasticity of demand = [2(q2 - q1)/(q2 + q1)] /[2(p2 - p1)/(p2 + p1)] ...

Solution Summary

A Complete, Neat and Step-by-step Solution is provided.