Danny “Dimes” Donahue is a neighborhood’s 9-year-old entrepreneur. His most recent venture is selling homemade brownies that he bakes himself. At a price of $2.25 each, he sells 100. At a price of $1.75 each, he sells 300.
Instructions: Round your answer to 1 decimal place.
a. What is the elasticity of demand?.
b. Is demand elastic or inelastic over this price range?.
c. If demand had the same elasticity for a price decline from $1.75 to $1.25 as it does for the decline from $2.25 to $1.75, would cutting the price from $1.75 to $1.25 increase or decrease Danny’s total revenue?