In the market for alcoholic beverages, a business called Drive-thru Bottle Shop offers a variety of different bottled wines to their customers. They stock many brands, some being very well-known, with others less well known. Answer the following questions: If a wine has significant brand recognition and customer loyalty, then the point price elasticity of demand at a given price for this wine would be elastic than the point price elasticity of demand of a similar wine where the wine maker has little brand recognition and customer loyal, ceteris paribus. Type L for Less, M for More or E for Equally. The demand for a particular wine sees customers purchase 6,000 bottles of wine when the price is $7.99 per bottle, and only 5,000 bottles when the price was increased to $8.49 by the Drive-thru Bottle Shop management. What is the price elasticity of demand using the mid-point formula? . Answer to the nearest two decimal places. Assume the Drive-thru Bottle Shop is trying to maximise revenue. Considering your findings in part b., did the Drive-thru Bottle Shop’s decision to increase the price agree with increasing revenue? . Type Y for Yes, N for No, or U for Unknown.

1. If a wine has significant brand recognition and customer loyalty, then the point price elasticity of demand at a given price for this wine would be Less (L) elastic than the point price elasticity of demand of a similar wine where the wine maker has little brand recognition and customer loyalty, ceteris paribus. This is because customers are more likely to continue buying a well-known brand even if the price increases, making the demand less sensitive to price changes.

2. To calculate the price elasticity of demand using the mid-point formula, we use the formula:

% change in quantity demanded / % change in price

First, we calculate the % change in quantity demanded: (5000 - 6000) / [(5000 + 6000) / 2] = -0.1818 or -18.18%

Next, we calculate the % change in price: ($8.49 -$7.99) / [($8.49 +$7.99) / 2] = 0.0638 or 6.38%

So, the price elasticity of demand is: -18.18% / 6.38% = -2.85

Therefore, the price elasticity of demand for this wine is 2.85.

3. If the Drive-thru Bottle Shop is trying to maximise revenue, increasing the price when the price elasticity of demand is greater than 1 (elastic) would not agree with increasing revenue. This is because when demand is elastic, an increase in price leads to a proportionally larger decrease in quantity demanded, which would decrease total revenue. So, the answer is No (N).