Pricing Example 3 — OpenTuition Forums

NNewcomer210y ago

Sir, The answer to example 3 (a) in pricing has been stated as 32. The % changes have been calculated by dividing the change by the new values. Is that right? Shouldn't we be dividing the difference by the original values to get the percentage changes?? I get the answer as 10. One more tiny thing sir, Part (b) expects the calculation of PED at the selling price of $15 while the answer has been calculated considering $14.5 to be the new selling price. There too the answer is 10 although it has been calculated using the original values as the denominators to calculate the % changes unlike part (a).

John MoffatTutor10y ago#1

The % change is the % change from the current value to the new value. So for part (a), the current price is 16, it changes to 15.5, so the % change is 0.5 / 16 = 31.25% At the current price of 16, the current demand is 100, it changes to 200, to the % change is 100/100 = 100% So the PED = 100/31.25 = 32 Part (b) is exactly the same approach starting with a current selling price of 15 and a current demand of 200. The price changes to 14.5 which is a % change of 0.5/14.5 = 3.45% The demand changes from 300 to 400, which is a % change of 100/300 = 33.33% So the PED is 33.33/3.45 = 9.66 (10)

NNewcomer210y ago#2

Thank you, sir. I thought that it was about the elasticity assuming that the current price was the answer we got in example 2 which is 15 and therefore I thought that we had to calculate the PED if the price changes from 15 to 16. This is also why I thought that part (b) was mistakenly given as 15 to be the current price. Thank you, sir :-)

John MoffatTutor10y ago#3

You are welcome :-)