Demand for DVD rentals at a video store is described by the equation: Q = 4000 – 500P, where Q denotes the number of DVDs rented per week and P is the rental price in dollars.
a. Determine the point price elasticity of demand at P = .00.
b. What would be the new point price elasticity if price were raised to P = .50?
c. If the profit maximizing price is .50, what is the marginal cost of a rental?
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- Computing the price elasticity of demand
MeNDeMHoLiC says
Q = 4000 – 500P
a. Q = 4000 – 500×3
Q = 2500
Elasticity point at 2500;3
b. Q = 4000 – 500×4.5
Q = 1750
Elasticity point at 1750;4.5
c. 2250
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