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Estimation of Elasticity of Demand

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The Olde Yogurt Factory has reduced the price of its popular Mmmm Sundae from $2.25 to $1.75. As a result, the firm's daily sales of these sundaes have increased from 1,500/day to 1,800/day. Compute the arc price elasticity of demand over this price and consumption quantity range.

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Solution Summary

Solution explains how to estimate the elasticity of demand.

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The Price Elasticity of Demand measures the rate of response of quantity demanded due to a price change.

The formula for the Price Elasticity of Demand (PEoD) is:
PEoD = (% Change in Quantity ...

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