On Friday, Dixie set up a lemonade stand and determined that if she reduced the price for a glass of lemonade by 4%, she sold 12% more glasses of lemonade.
Answer the following questions:
(a) What was the price elasticity of demand for lemonade on Friday?
(b) Should Dixie raise or lower her price to increase revenues?
The next day was very hot and Dixie felt the demand for lemonade might be more inelastic.
She tried pricing each glass at 75 cents and sold 60 glasses. She then raised the price to 80 cents and sold 54 glasses.
(c) What was the price elasticity on Saturday?
(d) Was demand more elastic Friday or Saturday?
Finally, on Sunday, Dixie did some analysis to determine that the demand function for that day was Q = 165 – 1.4P, where Q was the number of glasses sold and P was the price per glass in cents. On Sunday, Dixie sold 46 glasses of lemonade
(e) What was the price elasticity of demand at the point on the curve where Dixie was selling?
(f) At what was price was she selling?
(g) What were the revenues on Sunday?