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Calculate the arc elasticity of demand

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The local pest control company charges $50 for a routine service call. Marginal costs are constant at $25 per call. Recently, they had a month-long special of $40 per call, and sales increased from 50 to 75 for that month. Assume that the demand curve is linear and that the entire increase in sales for the month was a result of the price cut.

(i) Calculate the arc elasticity of demand between $40 and $50.

(ii) Calculate the optimal price, given your elasticity. Also calculate, for that price, the mark-up on cost and the mark-up on price.

Reference no: EM131499262

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