The president of the Super Sip Soda Corporation asks you, as the company economist, to forecast changes in consumer root beer purchases associated with a proposed price change. You conduct a survey and find that if the price of a six-pack increases from $8.50 to $10.50, the quantity demanded will decrease from 2,500 units to 2,350 units a month

the price elasticity of demand (midpoint formula) = % change in quantity demanded / % change in price = {(2,350 - 2,500) / [(2,350 + 2,500)/2]} / {(10.50 - 8.50) / [(10.50 + 8.50)/2]} = (-150 / 2,425) / (2 / 9.50) = -0.0619 / 0.2105 = -0.294 or |0.294| in absolute terms, price inelastic

this means that for every 1% that price increases, total quantity demanded will decrease by only 0.294%.

You can increase total revenue by increasing the price of beer:

previous revenue = $8.50 x 2,500 = $21,250

new revenue = $10.50 x 2,350 = $24,675

It is actually a very good idea to go ahead and increase the price.

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