Question

39 40 41 2. After seeing your analysis, Cal decides to lower the price of gas to $2.739 per gallon. After this change, 42 the volume sold increased to 4,400 gallons per day. He asks you to measure his business gains or losses as 43 a result of this price change. Fixed costs are $250 per day. 44 45 What is the price elasticity of demand? 46 Can the demand be characterized as price elastic, price inelastic, or neither? 47 By how much did revenues increase or decrease as a result of the change in price? 48 By how much did profits increase or decline? (Profits are revenue minus all costs.)

please help with question 2. thanks

Answer 1

Student - Please note that in the above Question , No information or data relates to Variable cost , so not possible to calculate Profit ..

	Gallon Sold per Day (Now		4,400
	Gallon Sold per Day (Earlier)		3,600
	Fixed cost ($		250
	Earlier price/ Gallon-P1		2.749
	Now price down / Gallon-P2		2.739
	Change in price ( P1-P2)		0.010
	Price Elasitcity
	% increase in Price
	(Change in Price (0.01))/Original price (2.749)		0.36%
	Gallon Sold per Day (Q1)		3,600
	Gallon Sold per Day (Q2)		4,400
	Quantity difference		800
	% reduction in Quality		22%
	( 800/3600)
	Price Elasicity demand
First a)	% change in Quantity/ % change in price		61.1
	(22%/0.36%)
	Reduction in price , increase in Quantity
	and price elasticity demand > 1
	then the Elasticy can be characterised " Elastic"
First b)	Change in Revenue		Amnt($)
	Earlier revenue		9,896	B
	(3600*2.749)
	present revenue		12,052	A
	(4400*2.739)
	Increase in revenue		2,155	(A-B)
First C)	While calculating Profit
	Revenue - variable cost - Fixed cost
	In the above question, No detail / number available
	relates to variable cost . In the Question , only Fixed cost $250 details
	available . So Not possible to calculate Profit