Question

1. Last week, Cal sold an average of 4,000 gallons per day at an average price of $2.658 per gallon. This week, he raised the average price to $2.758 per gallon. His station is now selling an average of 3,600 gallons per day. Fixed costs of operating the gas station are $438 per day.                                      
                                                    
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? (Profit is revenue minus total cost.)                                      
                                      
Quantity   Price                                  
4000   2.658                                  
3600   2.758                                  
Average   Average                                  
       ?            ?                 
% change   % change   Elasticity of Demand                              
       ?                    ?            ?
                                   
Elasticity:       ?                                
By how much did revenues increase or decrease as a result of the change in price?                                      
By how much did profits increase or decline?                                      
                                      

Gallons sold per day

Price

Revenue (price x gallons)

Cost per Gallon

Variable Cost (cost per unit x volume)

Fixed cost per day

Total Cost (Fixed + Variable)

Daily Profit (revenue - all costs)

       
        4000   $2.658    $10,632.00    $2.158 $8,632.00    $438.00    $9,070.00    $1,562.00           
        3600           

Answer 1

ULSO di = 4000 2 : 3600 P = 22.658 Px z 2.758. avenage quantity = 38ooants avenage puice a 2-758 fixed costs of operating - $488 pendaye % change in quantity = d-d, x100 = -400 x 100 4000 = 3600 - 4000 x 100 4000 = - 10000 of Clange in peeile By - P x 100 i 2.158-2,658 x 100 2.658 2 0.2 x 100 = 3.7% 2.658 Elasticity of demand a % change in quantity Demanded 1 % change in price Ed 2 -10% OU - 2 8.710 2.7.

32 Ed >I soo Demand ie puice Elastic. Revenue at (d. P.) = TR, = P xd, a 4000x2.658. - TR = $10,632) Revenue at CO2, p.) The Paxc = 36000 2.758. TR2 = $99288) Top: units produced cost peu gallons 2 4000 x 2.158 3 $8632 TVC2 ? umf produced & cost peu gallons - 36000 2.158 = $7768.8 TC = Tue, + TfG 8632 + 438. z $ 9070 TC22 TUCZ+ Tf C 7468.87 4383 $ 8206.8. T, TR, - TG, = 10,632 - 9070 2 $ I= TR2 - TC = 9928.8 - 8206.8. 2 8 1722 Revenue has decreased- & TRI - TR₂ = 10,632 - 9928.8. . Revenue has decreased lung = $703.2 Puff has increase My Tlpa 1722 - 1562 игру да іnсhеѕеd p { во