Question

ronda’s cake store earned $3,750 in total revenue last month when it sold 125 cakes. this month it earned $3,600 in total revenue when it sold 90 cakes. the price elasticity of demand for ronda’s cake store is A. 0.33. B. 0.88. C. 1.14. D. 7.98.

Answer 1

Price elasticity of demand

= %∆ demand/%∆ price

%∆ demand = (90 - 125)/125 = -35/125

= -7/25

%∆ price = ($3,600 - $3,750)/$3,750

= -$150/$3,750

= -1/25

Price elasticity of demand

= -7/25 ÷ -1/25

= 7