Purchase Solution

Calculate the price elasticity of demand.

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Demand for DVD rentals at a video store is described by the equation: Q = 4,000 - 500P, where Q denotes the number of DVDs rented per week and P is the rental price in dollars.

a) Determine the point price elasticity of demand at P = \$3.00.
b) What is the new point price elasticity if price is raised to P = \$4.50?
c) Comment on the change in elasticity.

Solution Summary

The solution describes the steps to calculate price elasticity of demand at given price levels. It also analyzes the results obtained. The change in elasticity is commented on.

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a) Determine the point price elasticity of demand at P = \$3.00.

Q=4000-500*P

Given, P=\$3.00
Q =4000-500*3=2500

Q=4000-500P
Differentiating with respect to P, we get
dQ/dP=-500

Price elasticity ...

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• BEng (Hons) , Birla Institute of Technology and Science, India
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