Question

Breckenridge Ski and Snow Board Rental Co. charges 67 for a one day rental. At that price they average renting 159 sets of apparatus. Their yield management consultant recommended they lower their price to 56. At that price the consultant expects their average daily rental will be 205 sets of apparatus. At those prices and demand, what elasticity of demand can be expected? (Solve to two decimal places.)

Answer 1

Price elasticity of demand = 1.76

Step-by-step explanation:

Price elasticity of demand (PED) is the degree of responsiveness of demand to a change in price.

Where a percentage change in price produces a more than a proportional change in quantity, we say the product is price elastic. On the other hand, where a change in price produces a less than a proportional change in quantity demand, then demand is price inelastic

PED is computed as follows:

PED = % change in quantity /% change in Price

% change in demand = (56- 67)/67 × 100 = 28.93081761

% change in price =16.41791045

PED = 28.93/16.4179 = 1.762

Price elasticity of demand = 1.76