A store that sells maize meal discovers that when the price of 1kg maize meal is R24 per kilogram, the quantity demanded is 306 kgs per week. When the price decreases to R21 per kg, then the sales increase to 340kgs per week. Use this information to answer questions 3.1.1 and 3.1.2 below: 3.1.1. Determine the price elasticity of maize meal using the arc method (5) 3.1.2 Discuss the relationship between the price elasticity of maize meal and the total revenue the store received from the sales. Advise the store on an appropriate pricing strategy.
A store that sells maize meal discovers that when the price of 1kg maize meal is R24 per kilogram, the quantity demanded is 306 kgs per week. When the price decreases to R21 per kg, then the sales increase to 340kgs per week. Use this information to answer questions 3.1.1 and 3.1.2 below:
3.1.1. Determine the price elasticity of maize meal using the arc method (5)
3.1.2 Discuss the relationship between the price elasticity of maize meal and the total revenue the store received from the sales. Advise the store on an appropriate pricing strategy.
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The formula to calculate elasticity using the arc method is given below:
E=Q2-Q1Q1+Q22P2-P1P1+P22Where,Q1= initial quantityQ2=new quantityP1=initial priceP2=new price
E=340-306306+340221-2424+212E=34323-322.5E=34×22.5323×-3E=765-969E=-0.79
The value of elasticity in absolute terms is 0.79. Since the value of elasticity in absolute terms is less than one (0.79<1) the demand is inelastic.
Can you put the above in correct format as per the formolation i get the answer different so not sure if i am doing something wrong see pic.
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