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Demand Elasticity Consultants

1. A consultant estimates the price-quantity relationship for New World Pizza to be
P=50-5Q.
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

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