The ACME Corporation determines that at current prices, the demand for its compu
ID: 1139607 • Letter: T
Question
The ACME Corporation determines that at current prices, the demand for its computer chips has a price elasticity of -2 in the short run, while the price elasticity for its disk drives is -1. If the corporation decides to raise the price of both products by 40 percent, what will happen to its sales? Sales of computer chips will decrease by 80 percent and sales of disk drives will decrease by 40 percent. (Enter your responses here and below using integers.) What will happen to sales revenue? Computer chip sales revenue will bypercent and disk drive sales revenue will Vby percent.Explanation / Answer
We know elasticity=%chnage in quantity demanded/%change in price
An increase in price by 40% will decrease the sale of computer chips by 80% and sale of disk drives will decrease by 40%.
Computer chips sales revenue will decrease and disk drive sales revenue will remain same because elasticity of demand is 1.
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