George has been selling 5,000 T-shirts per month for $8.50. When he increased the price to $9.50, he sold only 4,000 T-shirts. Which of the following best approximates the price elasticity of demand? - 2.2 - 1.8 - 2 - 2.6 Suppose George's marginal cost is $5 per shirt. Before the price change, George's initial price markup over marginal cost was approximately. George's desired markup is. Since George's initial markup, or actual margin, was than his desired margin, raising the price was.

Answer: George's initial price markup over marginal cost was approximately 41.2% George's desired markup is 45% Since George's initial markup, or actual margin, was Less than his desired margin, raising the price was profitable

Explanation:

a) Price Elasticity of Demand = [ (Q1-Q2) / (Q1+Q2) ] / [ (P1-P2) / (P1+P2) ]

= 5000 - 4000/4000 + 5000) / 8.50 - 9.50 / 8.50 ₊9.50 =

1000/8000 / - 1 / 18 = 0.125/-0.055 = - 2.2

George's initial price markup over marginal cost was approximately

when Marginal cost = $5

b) initial price markup = Price - marginal cost / price = 8.50 - 5.00 / 8.50 = 0.412 = 41.2%

C) George's desired margin = 1/absolute value of price elasticity = 1 / 2.2 = 0.45 = 45%

.

D) Since George's initial markup or actual margin was less than his desired margin, raising the price is profitable.

This is because When the markup is lower than the margin, business is running on a loss, so it is nessesary to increase price.