External analysis- economic factors

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May 25, 2021 at 11:46 am #621736
ketki15
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F plc produces a popular product, the F1200. Currently it sells 15000 units of this product each year at a price of $55 per unit. The company is now looking at whether it could make higher profits by increasing the sales price. Market research has indicated that if it increases the sales price of the F1200 to $60 per unit, the demand will fall to 12000 units.
Calculate the price elasticity of demand.
why is it that the solution for % change in price is calculated as 60-55/55 x 100 when it should be 60-55/60 x 100?
May 25, 2021 at 4:37 pm #621755
Ken Garrett
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It is because we started from 55 and are moving to 60, so the percentage change is based on where we start.
Similarly, the % change in volume should be (15,000 – 12,000)/15,000
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