QUESTION FIVE (20 Marks)

A producer of a new range of energy drink introduces their product at R25 per can. After a month of sales, they introduce

a special of R 40 for two cans. A month later they sell the product at the original introductory price. They subsequently

introduce another special after another month of R 45 for two. After a month of sales, they re-introduce the original special

of R40 for two and this special is kept on-going for numerous months thereafter. Use price elasticity theory to show why,

ceteris paribus, the producer settles at the initial special of R 40 for two. In your discussion, include a comment on the

type of price elasticity observed with the demand for this energy drink at these prices.

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