Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is
A)0.11.
B)0.47.
C)1.12.
D)2.11.

Question

Quizplus · Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% Change in Quantity Demanded) / (% Change in Price). The % change in price is ($750 - $600) / $600 = 25%. The % change in quantity demanded can be inferred from the revenue change, assuming each repair generates the same revenue: from $12,000 to $13,500 is a 12.5% increase. Assuming the price increase is the sole reason for revenue change, quantity demanded didn't decrease; instead, revenue increased due to higher prices, indicating inelastic demand. However, for elasticity calculation, we assume the quantity change is directly opposite to revenue change to apply the formula, which is not explicitly given. The correct approach involves recognizing that without the exact change in quantity demanded, we cannot directly calculate elasticity. The provided answer assumes a direct calculation method which typically requires both price and quantity changes. Given the information, a precise elasticity calculation isn't possible without assuming or calculating the exact change in quantity, which involves more information than provided. Thus, the response assumes an incorrect application of the elasticity formula, highlighting the importance of understanding the relationship between revenue, price, and quantity in elasticity calculations.

Skip's Sealcoating Service Increased Its Total Monthly Revenue from $12,000