(1) Nile.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Nile.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount.

Group A Group B

(sales per week) (sales per week)

Volume of sales before

the 10% discount 1.55 million 1.50 million

Volume of sales after

the 10% discount 1.65 million 1.70 million

A.Using the midpoint method, calculate the price elasticities of demand for group A and group B.

B.Explain how the discount will affect total revenue from each group.

C.Suppose Nile.com knows which group each customer belongs to when he or she logs on and can choose whether or not to offer the 10% discount. If Nile.com wants to increase its total revenue, should discounts be offered to group A or to group B, to neither group, or to both groups?

(2) A recent study determined the following elasticity for Volkswagen Beetles:

Price elasticity of demand = 2

Income elasticity of demand = 1.5

The supply of Beetles is elastic. Based on this information, are the following statements true or false? Explain your reasoning.

A.A 10% increase in the price of a Beetle will reduce the quantity demanded by 20%.

B.An increase in consumer income will increase the price and quantity of Beetles sold.