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 |
| $3.00 | 100 |
| 30 |
| $5.00 | 90 |
| 35 |
| $7.00 | 60 |
| 40 |
a. Calculate the price elasticity (arc elasticity) of demand for fuel oil as its price rises from $3.00 to $5.00; from $5.00 to $7.00. 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 $5.00 to $7.00. Are fuel oil and insulation substitutes or complements? Explain.
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