Suppose that a local cable company, the only provider of service, is maximizing profits at a price of $15 per month for local cable service. Assume that some of its customers have quite elastic demands and others have inelastic demands. A price change of $5 per month would cause a change in quantity demanded of 1,000 individual customers. There are 100,000 current individual customers. Businesses are more sensitive to price changes because they often have connections and can easily add or subtract a cable connection. An additional charge of $1 will mean 100 fewer customers. There are 1,000 business connections in the town. Using this information, answer the next three questions about price discrimination.Question 10.26HomeworkUnansweredDue Today, 11:59 PMIn the above situation, is individual demand is elastic or inelastic?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aElasticbInelastic
Question
Suppose that a local cable company, the only provider of service, is maximizing profits at a price of 5 per month would cause a change in quantity demanded of 1,000 individual customers. There are 100,000 current individual customers. Businesses are more sensitive to price changes because they often have connections and can easily add or subtract a cable connection. An additional charge of $1 will mean 100 fewer customers. There are 1,000 business connections in the town. Using this information, answer the next three questions about price discrimination.Question 10.26HomeworkUnansweredDue Today, 11:59 PMIn the above situation, is individual demand is elastic or inelastic?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aElasticbInelastic
Solution
The demand is elastic. This is because a change in price leads to a significant change in quantity demanded. In this case, a $5 change in price leads to a change in quantity demanded of 1,000 individual customers. This indicates that customers are sensitive to price changes, which is a characteristic of elastic demand.
Similar Questions
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