Question

The local pizzeria sells pizza for $12 a pie. Doing so, he has sold 150 pizza pies a week for the past year. He decides to raise his price to $15 and sees the sales of his pizza pies drop to 100 per week. Using the midpoint formula, calculate the elasticity of demand for pizza pies and determine whether it is elastic, inelastic, or unit elastic."

a) Elastic
b) Inelastic
c) Unit elastic
d) Perfectly inelastic

Answer 1

Using the midpoint formula, the elasticity of demand for pizza pies is calculated to be approximately -1.8, which indicates that the demand is elastic.

Step-by-step explanation:

The question asks us to calculate the elasticity of demand for pizza pies using the midpoint formula and to determine whether it is elastic, inelastic, or unit elastic. To calculate the elasticity of demand, we need to use the formula:

E_d = (ΔQ/Q_avg) / (ΔP/P_avg)

Where ΔQ is the change in quantity demanded, ΔP is the change in price, Q_avg is the average quantity demanded, and P_avg is the average price. Plugging in the given numbers:

• E_d = (-50 / 125) / (3 / 13.5) = -0.4 / 0.2222 ≈ -1.8

Since the absolute value of E_d is greater than 1, the demand for pizza pies is elastic. This means that the quantity demanded is considerably responsive to changes in price.