Question

when price of indomie noodles was lowered from #50 to #40 per unit, quantity demanded increases from 400 to 600 units per week. calculate the coefficient of price elasticity of demand and determine whether by lowering price this firm has made a wise decision ​

Answer 1

The price elasticity of demand is -10

Explanation:

Given

`p_1,p_2 = 50,40`

`q_1,q_2 = 400,500`

Solving (a): The coefficient of price elasticity of demand (k)

This is calculated as:

`k = (\triangle q)/(\triangle p)`

So, we have:

`k = (500 - 400)/(40 - 50)`

`k = (100)/(-10)`

`k = -10`

Because |k| > 0, then we can conclude that the company made a wise decision.