Question 1

Suppose you own a DVD rental where you currently renting 28 DVDs per day at a price of $17 per book. However, if you were to increase the price to $26, then you would sell 34 DVDs per day.

1. Using the midpoint formula, calculate the price elasticity of demand for DVDs.

Show all your workings.(4 marks)

1. )In this price range is the demand for your DVDs elastic/inelastic/unit elastic? Explain how you know this.(3 marks)

Question 2

1. If a 10 percent increase in the price of Almarai milk causes a 30 percent reduction in the number of Almarai milk bottles, what is the price elasticity of demand for Almarai milk bottles?(4 marks)
2. The demand for Almarai milk bottles is price elastic/inelastic/unit elastic? Will total revenue from Almarai milk bottles increase or decrease if there is a price increase? Explain your answer.(4 marks)