Suppose that the inverse demand curve for energy drinks can

Suppose that the inverse demand curve for energy drinks can be expressed as P=40-.5Q

A. what is the price elasticity of demand at Q=20

B. Interpret your result

Solution

A) Price elasticity of demand =dQ/dP*P/Q

P = 40 - 0.5Q or Q= 80 - 2P, now differentiate Q with respect to P

dQ/dP = -1

Price elasticity of demand = -2*( 40 -.5(20))/20 = -3

B) Since the absolute value of price elasticity of demand is 3 which is greater than 1 so the demand for energy drinks is elastic meaning the price change in energy drink will lead to the change in quantity demanded for energy drinks