Consider the market for a breakfast cereal. The cereal's price is initially $4.00 and 60 thousand boxes are demanded per week.

The company that produces the cereal is considering raising the price to $4.50. At that price, consumers would demand 55 thousand boxes of cereal per week.

What is the price elasticity of demandLOADING... between these prices using the midpoint formula LOADING...?

The price elasticity of demand using the midpoint formula is

- 0.73

Explanation:

The computation of the price elasticity of demand using 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 is

= Q2 - Q1

= 55,000 - 60,000

= -5,000

And, average of quantity demanded is

= (55,000 + 60,000) ÷ 2

= 57,500

Change in price is

= P2 - P1

= $4.50 - $4

= $0.50

And, average of price is

= ($4.50 + $4) ÷ 2

= $4.25

So, after solving this, the price elasticity of demand is - 0.73

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