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MathRocks' question at Yahoo! Answers regarding price elasticity of demand

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MarkFL

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Feb 24, 2012
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Here is the question:

Calc price elasticity problem and demand?

Suppose that 50000 people take city buses each day and pay for a ticket. A regression model suggests that the number of people taking city buses at price p dollars per ticket is given by

x=50000*sqrt(6−p)


(a) Evaluate the price elasticity of demand at \$5 per ticket.

E(5)=

(b) For what value of p is the demand unitary?
p=
Here is a link to the question:

Calc price elasticity problem and demand? - Yahoo! Answers

I have posted a link there to this topic so the OP can find my response.
 
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MarkFL

Administrator
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Feb 24, 2012
13,775
Re: MathRocks' quation at Yahoo! Answers regarding price elasticity of demand

Hello MathRocks,

In our problem, the point-price elasticity of demand is:

\(\displaystyle E_d=\frac{p}{x}\cdot\frac{dx}{dp}\)

Using the given \(\displaystyle x=50000\sqrt{6-p}\) we find:

\(\displaystyle E_d=\frac{p}{50000\sqrt{6-p}}\cdot\frac{-25000}{\sqrt{6-p}}=\frac{p}{2(p-6)}\)

(a) Evaluate the price elasticity of demand at \$5 per ticket.

Letting $p=5$, we find:

\(\displaystyle E_d(5)=\frac{5}{2(5-6)}=-\frac{5}{2}\)

At this price, we may say demand is relatively elastic.

(b) For what value of p is the demand unitary?

For this, we want to set:

\(\displaystyle E_d=-1\)

\(\displaystyle \frac{p}{2(p-6)}=-1\)

Now we solve for $p$:

\(\displaystyle p=2(6-p)\)

\(\displaystyle p=12-2p\)

\(\displaystyle 3p=12\)

\(\displaystyle p=4\)

Thus, we find that elasticity is unitary at a price of \$4.

To MathRocks and any other guests viewing this topic, I invite and encourage you to register and post other price elasticity of demand problems in our Business Mathematics forum.

Best Regards,

Mark.