Final answer:
To derive the firm's current demand curve and calculate the price elasticity of demand, we need data on the quantity demanded at different prices. Using the midpoint method, we can calculate the percentage change in quantity and price, and then divide them to obtain the price elasticity of demand. In this case, the firm's current price elasticity of demand is 0.52, indicating that the demand is relatively inelastic.
Step-by-step explanation:
To derive the firm's current demand curve, we need data on the quantity demanded at different prices. Let's assume we have the following data:
PriceQuantity Demanded$703000$602800
Using the midpoint method, the percentage change in quantity is calculated as:
(2800-3000)/(2800+3000)/2 x 100 = -6.9%
Next, we calculate the percentage change in price as:
(60-70)/(60+70)/2 x 100 = -13.3%
Dividing the percentage change in quantity by the percentage change in price, we get the price elasticity of demand:
-6.9%/-13.3% = 0.52
The firm's current price elasticity of demand is 0.52. This means that for every 1% decrease in price, the quantity demanded will decrease by 0.52%. The demand for the firm's product is inelastic, meaning that changes in price have a relatively small impact on quantity demanded.