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Mais Electrical Service, Inc., once the only provider of electrical repairs in Benton shire, is now facing intense competition from the many electric service firms that have been established over the years. As a result, the demand for electrical repairs has become price elastic. In an attempt to remain competitive, the manager at Mais decides that there needs to be a decrease in the price charged per hour for electrical service to households. After doing market research, the manager and his team project that dropping the price from $65 to $60 per hour would increase profit contribution of $10,000 per week by 20%.
If average variable cost is equivalent to $40 per hour, what is the projected increase in the number of hours?
Determine the arc price elasticity of demand based on these projections.
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