Suppose that at a price of Rs 30 per month there are 30000 subscribers to cable television in small Town. If small Town Cablevision raises its price Rs40 per month the number of subscribers will fall to 20000 Using the midpoint method for calculating the elasticity what is the price elasticity of demand for cable TV in Small Town ?
Correct answer: A. 1.4
- A. 1.4
- B. 0.66
- C. 0.75
- D. 2.0
Explanation
Using midpoints, the quantity change is 10,000/25,000 = 0.4 and the price change is 10/35 ≈ 0.286. Their ratio is about 1.4, so demand is elastic over this interval.
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