2. PV sells fridges for 500 and currently produces a revenue of 6 million per year. The firm expects the income of the market to rise by 10% next year as the economy moves out of recession. The marginal cost of producing the fridges is 300. The PED for PV's fridges is -1.2 and the income elasticity (YED) is 2.5.

a)Estimate sales revenue next year, assuming PV keeps its price the same.

b)Calculate the price PV should charge if it wants to maintain sales volume at its existing level.

c)Show which of the two strategies above is more profitable, comparing profits with their existing level.

Only type writing allow