One Guy's Pizza advertising expenditures are $1,200 and sales are $30,000. When the advertising expenditure increases to $1,400, pizza sales increase to $32,000. The arc advertising elasticity of demand is approximately:

A) 0.
B) 0.1.
C) 0.4.
D) 2.5.
E) 12.5.

Question

Jamesha Nesmith · Accepted Answer

Final Answer : C, Explanation :  Arc elasticity of demand is given by the formula:Arc elasticity = (Q2 - Q1) / Qavg * (Pavg / (P2 - P1))Where,Q1 = Initial quantity demanded = 30,000Q2 = Final quantity demanded = 32,000P1 = Initial price = $1,200P2 = Final price = $1,400Qavg = (Q1 + Q2) / 2 = (30,000 + 32,000) / 2 = 31,000Pavg = (P1 + P2) / 2 = ($1,200 + $1,400) / 2 = $1,300Substituting the values in the formula, we get:Arc elasticity = (32,000 - 30,000) / 31,000 * ($1,300 / ($1,400 - $1,200))= 2,000 / 31,000 * ($1,300 / $200)= 0.419Rounding off to one decimal place, the arc elasticity of demand is approximately 0.4, which is option C.

One Guy's Pizza advertising expenditures are $1,200 and sales are $30,000. When the advertising expenditure increases to $1,400, pizza sales increase to $32,000. The arc advertising elasticity of demand is approximately:

A) 0.
B) 0.1.
C) 0.4.
D) 2.5.
E) 12.5.

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One Guy's Pizza advertising expenditures are $1,200 and sales are $30,000. When the advertising expenditure increases to $1,400, pizza sales increase to $32,000. The arc advertising elasticity of demand is approximately:A) 0.B) 0.1.C) 0.4.D) 2.5.E) 12.5.

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Learning Objectives

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Related questions

One Guy's Pizza advertising expenditures are $1,200 and sales are $30,000. When the advertising expenditure increases to $1,400, pizza sales increase to $32,000. The arc advertising elasticity of demand is approximately:

A) 0.
B) 0.1.
C) 0.4.
D) 2.5.
E) 12.5.