Amazon.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Amazon.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 (sales per week) Group B (sales per week)

_______________________________________________________________________________________________

Volume of sales before 1.55 million 1.50 million

the 10% discount

Volume of sales after 1.65 million 1.70 million

the 10% discount

_______________________________________________________________________________________________

1. Using the midpoint method, calculate the price elasticities of demand for group A and group B. (10 marks)

2. Explain how the discount will affect total revenue from each group. (5 marks)

3. Suppose Amazon.com knows which group each customer belongs to when he logs on and can choose whether or not to offer the 10% discount. If Amazon.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? (5 marks)