If a firm reduces the price of its product from $6 to $4 and the quantity demanded of the product increases from 45,000 to 55,000 units per week, then the arc price of elasticity is equal to
A) -10.
B) -1.
C) 0.
D) -0.5.

Question

Quizplus · Accepted Answer

The arc price elasticity of demand is calculated using the formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Plugging in the values: [(55,000 - 45,000) / (55,000 + 45,000) / 2] / [(4 - 6) / (4 + 6) / 2] = 10,000 / 50,000 / -2 / 5 = 0.2 / -0.4 = -0.5.

If a Firm Reduces the Price of Its Product from $6