Question
1. Michela owns a used bike store in Irvine, California called Michela's Amazing Bikes (MAB). At first, MAB is the only bike shop in the
1. Michela owns a used bike store in Irvine, California called Michela's Amazing Bikes (MAB). At first, MAB is the only bike shop in the city so she has the market power to set the price wherever she wants. In order to get a feel for the market, she started selling the bikes for $150 and sold 400 bikes. After a few months, MAB decided to sell bikes at $210 and noticed they were only able to sell 240 bikes. Using the midpoint method, calculate the elasticity of demand for MAB. Round your answer to one decimal.
2. The demand for bikes at MAB is relatively
elastic | ||
inelastic |
2.
Meaning that the demand curve for bikes at MAB would be relatively
flat | ||
steep |
3.
Recall what we know about how elasticity impacts total revenue. Should this new price ($210) increase or decrease total revenue?
increase | ||
decrease |
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