Question
A company has calculated their point price elasticity of demand to be -0.8 when they sold 60,000 units, at a price of $200, during the
A company has calculated their point price elasticity of demand to be -0.8 when they sold 60,000 units, at a price of $200, during the month of November. Every December the company traditionally offers a holiday discount.
Choose a December price, lower than $200 but greater than $0. What is the expected quantity of units sold in December at your chosen price?
At the price chosen in part (a), calculate the firm's monthly revenue and the new point price elasticity of demand.
If you want to increase revenue with respect to November, would you raise or lower prices? Justify your answer by describing and using the economic intuition behind the concept of price elasticity of demand.
Give an example of a new December price that will increase monthly revenue with respect to November. Calculate the revenue obtained at this new price. Is your new price maximizing revenue for the firm? Justify your answer.
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