Question: Three Guys Named Al, a moving company, is contemplating a price hike. Currently, they charge $30 per hour, but Al thinks they could get $40.

Three Guys Named Al, a moving company, is contemplating a price hike. Currently, they charge $30 per hour, but Al thinks they could get $40. Al disagrees, saying it will hurt the business. Al, the brains of the outfit, has calculated the price elasticity of demand for their moving services in the range from $30 to $40 and found it to be 0.5.

a. Should they do as Al suggests and raise the price? Why or why not?

b. Currently, Three Guys is the only moving company in town. Al reads in the paper that several new movers are planning to set up shop there within the next year. Twelve months from now, is the demand for Three Guys’ services likely to be more elastic, less elastic, or the same? Why?

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