In order to attract more customers on Mondays (a slow day), Alex's Pizza Shop in Austin decided to reduce the price of their pizza rolls from $3

For Requirement A

To calculate the price elasticity of demand , we use Midpoint Elasticity formula.

Ed = ((Q2 - Q1) / ((Q2 - Q1) / 2) / (P2 - P1) / ((P1 + P2) / 2))

Ed = Price Elasticity of Demand

We have the following facts,

Q2 = 130

Q1 = 70

P1 = $3.50

P2 = $2.50

So,

Ed= (130 - 70) / ((130 + 70) / 2) / ($2.50 - $3.50) / (($3.50 + $2.50) / 2)

Ed= (60 / 100) / (- $1 / $3)

Ed= - 1.8

Taking the absolute, we can have a price elasticity of 1.8.

For Requirement B

For the cross price elasticity we take the values of soft drinks.

Ec = ((Q2 - Q1) / ((Q2 - Q1) / 2)) / ((P2 - P1) / ((P1 + P2) / 2)

Ec= Cross price elasticity of demand

We have the following facts,

Q2 = 90

Q1 = 40

P1 = $3.50

P2 = $2.50

So,

Ec = ((90 - 40) / ((90 + 40) / 2)) / (($2.50 - $3.50) / (($3.50 + $2.50) / 2))

Ec = (50 / 65) / (- $1 / $3)

Ec = - 2.31

Taking the absolute value, we can have a cross-price elasticity equivalent to 2.31.