A firm's demand curve is estimated to be Q = 400 - 5P, where Q is quantity and P is the price of the good

Economics Aug 16, 2020

A firm's demand curve is estimated to be Q = 400 - 5P, where Q is quantity and P is the price of the good. At P = $15, what is the point elasticity of demand?

Expert Solution

Computation of Point Elasticity of Demand:

Q = 400 - 5P

Here,

P = $15

So,

Q = 400 - 5*15 = 400 - 75 = 325

Point Elasticity of Demand = ?Q/?P *( P /Q)

Here,

?Q/?P is the price coefficient = -5

Point Elasticity of Demand = -5 * ($15 / 325)

= -5 * 0.0462

Point Elasticity of Demand = -0.23 (The absolute value is 0.23)

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