Revenue at a major cellular telephone manufacturer was $2.3 billion for the nine

Question

Revenue at a major cellular telephone manufacturer was $2.3 billion for the nine months ending March 2, up 85 percent over revenues for the same period last year. Management attributes the increase in revenues to a 108 percent increase in shipments, despite a 21 percent drop in the average blended selling price of its line of phones. Given this information, is it surprising that the company?s revenue increased when it decreased the average selling price of its phones? No. Own price elasticity is -0.19, which means demand is elastic and a decrease in price will raise revenues. No. Own price elasticity is -5.14, which means demand is elastic and a decrease in price will raise revenues. Yes. Own price elasticity is -5.14,which means demand is elastic and a decrease in price will decrease revenues. Yes Own price elasticity is -0.19, which means demand s inelastic and a decrease in price will decrease revenues.

Explanation / Answer

The shipments increased by 108% and the price dropped by 21%

Ed=% change in demand / % change in its Price = 108/21

the second option is correct that the demand is elastic and a fall in the price will increase the revenues as the absolutevalue of Ed>1.

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