Good morning.

I am seeking assistance with the Economics question below.

To gain some understanding of the demand for your product, you decide to sell your product in two regions at two different prices. In the first region, you set a price of $6/unit and you end up selling 110 units. In the second region, you set the price at $10/unit and sell 90 units.

a) Using this data, calculate the arc elasticity of demand. Is demand for your product price elastic or inelastic? Will profits be higher at a price of $6/unit or $10/unit?Explain.

b) Now you worry that your conclusions in part (a) may be wrong because you didn't account for an important non-price factor of demand that was quite different in the two regions. Specifically, the population of the second region is three times larger than the population of the first region. Should you adjust your estimate of the arc elasticity of demand? If not, explain why the population difference is not relevant to your elasticity estimate. If you think you need to make an adjustment, then adjust as think is needed, recalculate arc elasticity, and compare results with part (a).