Question

A manufacturer calculates that the price elasticity of demand for his /her good is 2.2 .it is
decided to lower the price of the good from birr 6 to 5. At this lower price sales (TR) increases
to 15 birr per week. Calculate the quantity sold per week at the original price.

Answer 1

$TR=PхQ_d$

$Q_d=\frac{15}{5}=3$ - final quantity with lower price.

$E_P=\frac{\%\Delta Q}{\%\Delta P}$

$\%\Delta P=\frac{5-6}{6}=0.1667$

$\frac{\%\Delta Q}{0.1667}=2.2$ , then $\%\Delta Q=2.2*0.1667=0.3667$

$\frac{3-Q_0}{Q_0}=0.3667$

$Q_0=2.195$ -the initial quantity sold per week.