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Last week, Cal sold an average of 4,000 gallons per day at an average price of $2.658 per gallon. This week, he raised the average price to $2.758 per gallon, and both revenues and profits changed. His station is now selling an average of 3,600 gallons per day. Fixed costs of operating the gas station are $438 per day.
Problem 1: What is the price elasticity of demand?
Problem 2: Can the demand be characterized as price elastic, price inelastic, or neither?
Problem 3: By how much did revenues increase or decrease as a result of the change in price?
Problem 4: By how much did profits increase or decline? (Profit is revenue minus total cost.)
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