Biciclette, S.A. sells only one model of bicycles. This Italian firm expects to

Question

Biciclette, S.A. sells only one model of bicycles. This Italian firm expects to increase its prices by 11% next year and, as a result, it also expects the number of bicycles sold to decrease by 23% next year, relative to this year. If these expectations materialize, what will be the exact percentage change in revenues for Ladri next year, relative to this year?

Biciclette, S.A. sells only one model of bicycles. This Italian firm expects to increase its prices by 11% next year and, as a result, it also expects the number of bicycles sold to decrease by 23% next year, relative to this year. If these expectations materialize, what will be the exact percentage change in revenues for Ladri next year, relative to this year?

Explanation / Answer

Reveneu=Price*Quantity

Let price this year be x and quantitty this year be y

Hence, revenue this year=xy

price next year=x*(1+11%)=1.11x

quantity next year=y*(1-23%)=0.77y

revenue next year=1.11x*0.77y=0.8547xy

hence, revenue change %=(0.8547-1)*xy/xy=-14.53%

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