The Initial Price of a Cup of Coffee Is $1,and

question 9

Essay

The initial price of a cup of coffee is $1,and at that price,400 cups are demanded.If the price falls to $0.90,the quantity demanded will increase to 500.
a.Calculate the (arc)price elasticity of demand for coffee.
b.Based on your answer,is the demand for coffee elastic or inelastic?
c.Based on your answer to a.,if the price of coffee is increased by 10%,what will happen to the revenues from coffee? Carefully explain how you know.

---

Definitions:

Entity's Profits

The financial gain that remains after subtracting all expenses, taxes, and costs from a company's revenue.

Residual Interest

The interest remaining in a trust or estate once all prior obligations, claims, or interests have been satisfied.

Equity Instrument

Any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Derivative Instrument

A financial contract whose value is derived from the value of an underlying asset, index, or rate.