George has been selling 8,000 T-shirts per month for $8.00. When he increased the price to $9.00, he sold only 7,000 T-shirts. Which of the following best approximates the price elasticity of demand?
A. -1.2467
B. -1.02
C. -0.5667
D. -1.1333
Suppose George's marginal cost is $3 per shirt.
Before the price change, George's initial price markup over marginal cost was approximately
A. 0.5625
B. 0.375
C. 0.625
D. 0.6875
George's desired markup is?
A. 1.3235
B. 0.7941
C. 0.9706
D. 0.8824
Since George's initial markup, or actual margin, was (LESS OR GREATER) than his desired margin, raising the price was (PROFITABLE OR NOT PROFITABLE).

a. The best approximates the price elasticity of demand is -1.1333. Therefore, the correct option is D. -1.1333.

b. George's Initial price markup over marginal cost = 0.625. Therefore, the correct option is C. 0.625.

c. George's desired markup = 0.8824. Therefore, the correct option is D. 0.8824.

d. Since George's initial markup, or actual margin, was LESS than his desired margin, raising the price was PROFITABLE.

Explanation:

a. Which of the following best approximates the price elasticity of demand?

Price elasticity of demand = Percentage change in quantity demanded / Percentage change in price (1)

Where, based on the midpoint formula, we have:

Percentage change in quantity demanded = {(New quantity demanded – Old quantity demanded) / [(New quantity demanded + Old quantity demanded) / 2]} * 100 = {(7000 - 8000) / [(7000 + 8000) / 2]} * 100 = -13.3333333333333%

Percentage change in price = {(New price - Old price) / [(New price + Old price) / 2]} * 100 = {(9 - 8) / [(9 + 8) / 2]} * 100 = 11.7647058823529%

Substituting the values into equation (1), we have:

Price elasticity of demand = -13.3333333333333% / 11.7647058823529% = -1.13333333333333

Approximated to 4 decimal places, we have:

Price elasticity of demand = -1.1333

This implies that the best approximates the price elasticity of demand is -1.1333.

Therefore, the correct option is D. -1.1333.

b. Suppose George's marginal cost is $3 per shirt. Before the price change, George's initial price markup over marginal cost was approximately.

George's Initial price markup over marginal cost = (Initial selling price - marginal cost) / Initial selling price = ($8 - $3) / $8 = 0.625

Therefore, the correct option is C. 0.625.

c. George's desired markup is?

George's desired markup = 1 / Absolute value of price elasticity of demand BEFORE approximation to 4 decimal places = 1 / 1.13333333333333 = 0.88235294117647

Approximated to 4 decimal places, we have:

George's desired markup = 0.8824

Therefore, the correct option is D. 0.8824

d. Since George's initial markup, or actual margin, was (LESS OR GREATER) than his desired margin, raising the price was (PROFITABLE OR NOT PROFITABLE).

George's Initial price markup over marginal cost = 0.625

George's desired markup = 0.8824

Therefore, we have:

Since George's initial markup, or actual margin, was LESS than his desired margin, raising the price was PROFITABLE.

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