Each scenario gives some information about price elasticity of demand. For each,

Question

Each scenario gives some information about price elasticity of demand. For each, calculate the missing data, and determine if the price change under consideration will increase, decrease. or not change the firm's total revenuc. Honest Abe's Used Cars estimates the price elasticity of demand for their cars to be-4.1. Last month, Abe tried a new marketing scheme which decreased the number of cars sold by 87%. Abe must have increased 04 his prices by 27.87 Abe's total revenue At Webs R Us, a website design company the new manager has decided to increase the price of Web-R Us services by She estimates that Webs-R-Us has a price elasticity of demand at-0.30. 5%. The manager expects the number of websites designed to decreasoc by -43.32 and total revenue to rease

Explanation / Answer

Price elasticity = percent change in quantity demanded/percent change in price

Honest Abe's:

Abe must have increased his prices by = 87/4.1 = 21.22% and Abe's total revenue decreased. (this is because increase is prices leads to higher than proportional reduction in quantity demanded, total revenue decreases)

Webs-R-Us:

The manager expects the number of websites designed to decrease by = 15 x 0.3 = 4.5% and total revenue would increase.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.