II. Rooms & More; Beds and Recliners: (30 POINTS)

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Suppose Dr. Ahmed Murtuza is working as a consultant for Rooms & More chain of stores in the Dallas area. He estimates the market demand for Basset Sofa-cum Beds as follows

Q = 840 - 0.50P

where Q = quantity demanded per period of time and P = price of Sofa cum Beds

1. Calculate the Price Elasticity of Demand using the Point Elasticity approach. If Rooms and More lower the price of Sofa cum Beds from $1000 to $800. Based on your results, should the firm raise or lower the price to increase revenues? Why? Explain. Would the total consumer expenditures for Sofa cum Beds rise, fall, or remain unchanged? Why?

2. When Rooms & More stores lower their price from $1000 to $800, what predictions, if any, can you make about the effect the price reduction would have upon the firm's profits? Why or why not?

1. Rooms & More also sells 300 Recliners for $350 per unit. In early October 2021, Stacy's Furniture stores, a major competitor cut the price of their Recliners from $400 to $300. As a result of this action, Rooms & More sales of their Recliners decreases from 300 per month to 250 units per month. Using this data, calculate the cross elasticity of demand between Rooms & More's and Stacy's Recliners. Based on the results, are these two companies' weak or strong competitors? Why? Explain.

1. Offer some non-price strategies which Rooms & More can use to boost their ales and revenues and still remain profitable. Your responses should also be based using an economic framework - which of the choices you recommend would be the most effective and result in maximum profits.