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In fall 2006, Pace University in New York raised its annual tuition from $25,000 to $29,200. Freshman enrollment declined from 1,475 fall 2005 to 1,120 in fall 2006. Assuming that the demand curve for places in the freshmen class at Pace did not shift between 2005 and 2006, use this information to calculate the price elasticity of demand. Use the midpoint formula in your calculation.
Source: Karen W. Arenson, "At Universities, Plum Post at Top Is Now Shaky," New York Times, January 9, 2007.
The price elasticity of demand for Pace University for the fall of 2006 is -1.77.
The demand for places in Pace's freshman class is price elastic.
Calculate the total revenue generated from Pace's freshman class in 2005 $

Respuesta :

Answer:

-1.77 and $3,6875,000

Explanation:

The computation of the price elasticity of demand using the mid point formula is shown below:

= (Change in quantity demanded ÷ average of quantity demanded) ÷ (percentage change in price ÷ average of price)  

where,  

Change in quantity demanded would be

= Q2 - Q1

= 1,120 - 1,475

= -$355

And, average of quantity demanded would be

= (1,120 + 1,475) ÷ 2

= 1297.5

Change in price would be  

= P2 - P1

= $29,200 - $25,000

= $4,200

And, average of price would be

= ($29,200 + 25,000) ÷ 2

= $27,100

So, after solving this, the price is -1.77

Since the price elasticity of demand is more than 1 that reflect the demand is elastic

And, the total revenue is

= $25,000 × $1,475

= $3,6875,000

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