Question

Fiona’s Fish Emporium increased its total monthly revenue from $1,500 to $1,800 when it raised the price of tropical fish from $5 to $9. The price elasticity of demand for Fiona’s Fish Emporium is

Answer 1

Answer:

We need first to calculate how much the quantity demanded changed

The quantity of fish demanded with a revenue of $1,500 at $5 per fish is equal to:

$1,500/$5 = 300

For a revenue of $1,800 at $9 per fish:

$1,800/$9 = 200

Now we can calculate the price elasticy of demand. Remember the formula

PED = ΔQuantity /ΔPrice

ΔQuantity = Q2 - Q1 / Q1

Where Q1 is the old quantity demanded and Q2 is the new quantity demanded

ΔQuantity = 200 - 300/300

                   = -0.33

ΔPrice = P2 - P1/P1

Where P1 is the old price and P2 is the new price

ΔPrice = 9 - 5/5 = 0.8

Now we can finally calculate the price elasticity of demand

PED = -0.33/0.8

       = -0,4125