Danny “Dimes” Donahue is a neighborhood’s 9-year-old entrepreneur. His most recent venture is selling homemade brownies that he bakes himself. At a price of $2.5 each, he sells 100. At a price of $2 each, he sells 300.
a. What is the elasticity of demand?
b. Is demand elastic or inelastic over this price range? (Click to select) Elastic Inelastic.
c. If demand had the same elasticity for a price decline from $2 to $1.5 as it does for the decline from $2.5 to $2, would cutting the price from $2 to $1.5 increase or decrease Danny’s total revenue?