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Demand Elasticity Consultants

1. A consultant estimates the price-quantity relationship for New World Pizza to be
a. At what output rate is demand unitary elastic?
b. Over what range of output is demand elastic?
c. At the current price, 8 units are demanded each period. If the objective is to increase total revenue, should the price be increased or decreased? Explain.

Solution Preview

Answer (a):
P=50 - 5Q
=> Q = 10 - 0.2P
The slope is 0.2. Thus for unitary elasticity:
1 = 0.2x(P/Q)
=>P/Q = 5
=> P = 5Q

Substituting this above ...

Solution Summary

The solution answers a lot of questions about the demand elasticity