When the Price of Pencils Decreases from $3 to $1

question 298

Essay

When the price of pencils decreases from $3 to $1, the quantity demanded increases from 100 to 200 pencils.Using the midpoint method, the price elasticity of demand equals:
A.1/6.
B.1/2.
C.2/3.
D.3/2.

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Definitions:

Sunk Costs

Costs that have already been incurred and cannot be recovered or altered, and thus should not affect future business decisions.

Side-Effect Costs

Unintended expenses or losses that occur as a result of business decisions, not directly related to the project in question.

Incremental Overhead

Additional overhead costs that are incurred when an organization increases its production volume or undertakes new activities.

Financing Costs

Expenses incurred by a company in the process of raising capital through debts and/or equity, including interest payments and commissions.