Answer :
The monthly income of a typical news kid after the price increase is $360.
To calculate the monthly income of a typical news kid before and after the price increase, we need to consider both scenarios.
Initial Scenario (Before the price increase):
Piece rate per subscriber per month: $22
Number of subscribers in their territory: 200
Monthly Income before the price increase = Piece rate × Number of Subscribers
Monthly Income before the price increase = $22 × 200 = $4,400
Scenario after the price increase:
New minimum piece rate per subscriber per month: $3
Price increase percentage: 20%
The price elasticity of demand (PED) is 2.0, which means that for a 1% increase in price, the quantity demanded will decrease by 2%.
In this case, the price increased by 20%, calculate the percentage decrease in quantity demanded using the PED formula:
PED = (% Change in Quantity Demanded) / (% Change in Price)
2.0 = (% Change in Quantity Demanded) / 20%
% Change in Quantity Demanded = 2.0 × 20% = 40%
This means that the quantity demanded decreased by 40% due to the price increase.
Now, let's calculate the new number of subscribers a typical news kid has after the price increase:
New Subscribers = Initial Subscribers - (% Change in Quantity Demanded × Initial Subscribers)
New Subscribers = 200 - (0.40 × 200) = 200 - 80 = 120 subscribers
Monthly Income after the price increase = Piece rate × New Subscribers
Monthly Income after the price increase = $3 × 120 = $360
So, the monthly income of a typical news kid after the price increase is $360.
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