Final answer:
Price elasticity of demand measures the responsiveness of quantity demanded to price changes. The midpoint method averages the starting and ending values for both price and quantity. Whether demand is elastic or inelastic affects whether total revenue will increase or decrease with a price change.
Step-by-step explanation:
To calculate the price elasticity of demand using the midpoint method, you could use the following formula:
Price Elasticity of Demand = (Percentage Change in Quantity Demanded) / (Percentage Change in Price)
Using the midpoint method to calculate the percentage changes smoothens out the calculation by taking the average of the starting and ending values for both price and quantity. This minimizes the bias that could result from which point is chosen as the 'original' or 'new' price or quantity.
Given two price levels, $20 and $28 per ton, if demand for pistachios is price elastic (elasticity greater than 1 in absolute value), this indicates that consumers are very responsive to price changes. If the price of pistachios increases due to pestilence and demand is elastic, the grower's total revenue from pistachio sales would likely decrease as the higher price leads to a proportionally larger decrease in quantity demanded. On the other hand, if demand is inelastic (elasticity less than 1 in absolute value), raising prices will lead to a smaller percentage decrease in quantity sold, potentially increasing total revenue.
Without specific data on the change in quantity demanded, we cannot calculate the precise price elasticity of demand or predict the exact revenue changes for pistachios. However, if a grower claims that demand for pistachios is inelastic, and they expect total revenue to increase due to a pestilence that reduces supply and raises prices, the claim could be true based on the principles of inelastic demand.