Calculate the arc cross elasticity of demand for insulation

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Reference no: EM13921692

The accompanying chart presents data on the price of fuel oil, the quantity demanded of fuel oil, and the quantity demanded for insulation.

	Fuel Oil		Insulation
Price per Gallon		Quantity Demanded (millions of gallons)	Quantity Demanded (millions of tons)
$3		100	30
$5		90	35
$7		60	40

a. Calculate the price elasticity (arc elasticity) of demand for fuel oil as its price rises from 30 to 50 cents; from 50 to 70 cents. Calculate the change in total revenue in the two cases. Explain how the changes in revenue relate to your estimated elasticities.

b. Calculate the arc cross elasticity of demand for insulation as the price of fuel oil rises from 50 to 70 cents. Are fuel oil and insulation substitutes or complements? Explain.

Reference no: EM13921692

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