A Health Club Sells 50 Memberships When the Monthly Price

question 114

Multiple Choice

A health club sells 50 memberships when the monthly price is $60 and 70 memberships when the monthly price is $40. The price elasticity of demand for memberships at this health club is (using the average values method) :

• A) 0.25.
• B) 0.6.
• C) 1.0.
• D) 1.1.
• E) 0.83

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Definitions:

Marginal Cost

The extra expense resulting from the production of a single additional product or service unit.

Fixed Cost

Fixed costs are business expenses that remain unchanged regardless of the level of production or sales, such as rent, salaries, and insurance premiums.

Output

The cumulative sum of products and services generated by an economy.

Average Fixed Cost

The set expenses associated with production (not influenced by production scale) distributed over the number of items produced.