Question

A 1 B C D E F G 2. After seeing your analysis, Cal decides to lower the price of gas to $2.739 per gallon. After this change, the volume sold increased to 4,400 gallons per day. He asks you to measure his business gains or losses as a result of this price change. Fixed costs are $250 per day 2 3 Quantity 4400 4000 Average Price 2.739 2 749 Average What is the price elasticity of demand? Can the demand be characterized as price elastic, price inelastic, or neither? By how much did revenues increase or decrease as a result of the change in price? By how much did profits increase or decline? (Profits are revenue minus all costs.) % change 10.000% % change 0363% Elasticity of Demand 27.540 Elasticity: Price Elastic By how much did revenues increase or decrease as a result of the change in prid By how much did profits increase or decline? S 4 .00 0 550 Gallons sold per day Price Revenue (pricex gallons) Cost per Gallon Variable Cost cost per unite volumel Fixed cost per Total Cost d dy 3600 4400 Answer question 3 below. Quantity Price 3. After seeing the result (from question 2). Cal decided to lower his price once again to $2.729 per gallon. Once again, volume sold increases and settles at 4,800 gallons per day. He is worried that any further price cut will cause the discount station across the street to also lower its price Avene Average change chance Elasticity of Demand What is the price elasticity of demand? Can the demand be characterized as price elastic, price inelastic, or neither? By how much did revenues increase or decrease as a result of the change in price? By how much did profits increase or decline? (Profits are revenue minus all costs.) 03 64 Elasticity Select One By how much did revenues increase or decrease as a result of the change in price? By how much did profits increase or decline? Variable Cost cost per units Fixed cost per Total Cost Valable Gallons sold per Revenue (price gallons Cost per Gallon Price day

Answer 1

The detailed explanation is given in the attached solution itself.

Price Revenue Quantity 13099.2 4800 2.729 4400 2.739 12051.6 Revenue Total Cost (Variable Profit (Revenue- Gallons sold per Variable cost per Total variable gallon Price per gallon(Qty*Price per gallon) Fixed Cost day Cost+Fixed Cost)otal Cost) 250 cost % change in Quantity % change in price Price elasticity of Demand is (%change in demand/%change in Price) 9.091% 0.365% 12619.2 12869.2 13099.2 4800 2.729 2.629 230 Answer 12051.6 11817,6 24.90 Part 1 11567.6 250 Change in Profit Profit decreased 234 4400 2.739 2.629 -4 Since the elasticity is greater than 1, price elasticity of demand is elastic Answer Part 2 by $4 Answer Part 4 Answer 1047,6 Part 3 Q2* P2-Q1 P1 Change in Revenue For finding variable cost, we have to use information from previous question Profit when price is 2.739 Revenue-Variable cost-fixed cost per day 4400 2.739-4400*V-250 Answer Part 4 Let variable cost per gallon is (V) Profit when price is 2.749 Revenue-Variable cost-fixed cost per day 4000 2.749-4000*V-250 The change in profit is $4 which equates the Variable cost per gallon to be 2.629