Answer to Question #98013 in Microeconomics for Michael Owusu-Asumeng

Question

the arc advertising elasticity is 1.5 as advertising expenditure increases from $10 to $12 million. if demand is 50 at an advertising expenditure of $12 million, what will be the demang at an advertising expenditure of $10 million?

Answer 1

$$Arc Ed = [(Qd_2 – Qd1) / (Qd_1 + Qd_2) / 2 ] ÷ [(P_2 – P_1) / (P_1 + P_2) / 2]$$

$Arc Ed = [(Qd_2 – Qd_1) / (Qd_1 + Qd_2) / 2 ] ÷ [(P_2 – P_1) / (P_1 + P_2) / 2]$

$1.5 = [(50 – Qd_1) / (Qd_1 + 50) / 2 ] ÷ [(12– 10) / (12 + 10) / 2]$

$0.27= 2(50 – Qd_1) / (Qd_1 + 50)$

$Qd_1=38.1$

if expenditure of $10 million, demand is 38.10