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1. Last week, Cal sold an average of 4,000 gallons per day at an average price...

1. Last week, Cal sold an average of 4,000 gallons per day at an average price of $2.658 per gallon. This week, he raised the average price to $2.758 per gallon. His station is now selling an average of 3,600 gallons per day. Fixed costs of operating the gas station are $438 per day.                                      
                                                    
What is the price elasticity of demand?                                      
Can the demand be characterized as price elastic, price inelastic, or neither?                                      
By how much did revenues increase or decrease as a result of the change in price?                                      
By how much did profits increase or decline? (Profit is revenue minus total cost.)                                      
                                      
Quantity   Price                                  
4000   2.658                                  
3600   2.758                                  
Average   Average                                  
       ?            ?                 
% change   % change   Elasticity of Demand                              
       ?                    ?            ?
                                   
Elasticity:       ?                                
By how much did revenues increase or decrease as a result of the change in price?                                      
By how much did profits increase or decline?                                      
                                      

Gallons sold per day Price Revenue (price x gallons) Cost per Gallon Variable Cost (cost per unit x volume) Fixed cost per day Total Cost (Fixed + Variable) Daily Profit (revenue - all costs)

       
        4000   $2.658    $10,632.00    $2.158 $8,632.00    $438.00    $9,070.00    $1,562.00           
        3600           

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Answer #1

ULSO di = 4000 2 : 3600 P = 22.658 Px z 2.758. avenage quantity = 38ooants avenage puice a 2-758 fixed costs of operating - $32 Ed >I soo Demand ie puice Elastic. Revenue at (d. P.) = TR, = P xd, a 4000x2.658. - TR = $10,632) Revenue at CO2, p.) The

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