Question

Using the midpoint method, find the cross-price elasticity of demand for FedEx and UPS overnight shipping if the price of FedEx increased from $65 to $75 and the quantity demanded of UPS went up from 1.2 million packages per day to 1.3 million. Round to two decimal places as necessary.

Answer 1

Cross price elasticity using midpoint method = 0.56

Explanation:

Using the mid-point method

Cross-price Elasticity of Demand = % change in Quantity demanded of UPS

% change of price of FedEx

%change in Quantity demanded of UPS

using Mid-point method = Q2-Q1 × 100

(Q1+Q2)÷ 2

= 1.3-1.2 × 100

(1.2+1.3)÷2

= 0.1 × 100

1.25

= 8%

% change in price of FedEx

using midpoint method = P2-P1 × 100

(P1+P2)÷ 2

= 75-65 × 100

(65+75)÷2

= 10 × 100

70

= 14.28%

Cross-price Elasticity of Demand = 8% ÷ 14.28%

using midpoint method = 0.56