If the price of graham crackers is $2.50 should firms raise or lower their prices if they want to increase revenue? Explain this in terms of elasticity.…
In an article about the financial problems of USA Today, Newsweek reported that the paper was losing about $20 million a year. A Wall Street analyst said that the paper should raise its price from 50 cents to 75 cents, which he estimated would bring in an additional $65 million a year. The paper's publisher rejected this idea, saying that circulation could drop sharply after a price increase, citing the Wall Street Journal's experience after it increased its price to 75cents. What implicit assumptions are the publisher and analyst making about price elasticity?…
Elasticity of demand is a measure of responsiveness to a price change of a good or service. When demand is elastic, the percentage of a price change of a product will result in a larger percentage of quantity demanded (McConnell, p 77). It basically means reducing the price of a good service will result in a greater quantity demanded and an increase in revenue for the seller. When demand is inelastic, a change in price will result in a reduction of quantity demanded, which will then lead to a revenue decrease (McConnell, p 77). To demonstrate elastic and inelastic demand results, Company A sells 100 pens at $1.00 a piece each day, making their revenue $100.00. Company A then decides to sell their pens at $.50, which results in a total of 250 pens being sold. The total revenue from the price drop is $125, resulting in an additional $25.00; therefore the demand in this scenario is elastic. If selling the pens at the decreased price of $.50 would result in more pens being sold, but less total revenue, the demand is said to inelastic. According to McConnell, when demand in unit elastic, the percentage change in price and the resulting percentage changes in demand are the same. The change in price will not increase or decrease revenue.…
33. Assume that the price elasticity of demand is -2 for a certain firm 's product. If the firm raises price, the firm 's managers can expect total revenue to:…
Hint : A price increase under elastic demand will cause a decline in total revenue while a price increase under unitary elasticity will cause the total revenue to remain unchanged. A price increase under inelastic demand will lead to an increase in total revenue.…
If the price of graham crackers is $2.50 should firms raise or lower their prices if they want to increase revenue? Explain this in terms of elasticity.…
Chapter 3 -Problem 7 Answer: In an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price and an 11 percent increase in advertising. If the price elasticity of demand is -1.5 and the advertising elasticity of demand is +.06, would you expect an increase or decrease in total revenues?…
The demand for corn as an ingredient for an alternative energy source has had a profound effect on its supply as a core food ingredient. So, what has been the effect on the supply of corn and its substitute such as the soybean? The answer can be found by examining the five demand determinants and five supply determinants to see which ones will shift demand and supply. The demand determinants are known as T-I-P-E-N, which stands for Taste of preference, Income, Price of complements and substitutes, Expectation of consumer, and Number of buyers in the market. The supply determinants are known as P-R-E-S-T, which stands for Producers (number of), Resource price, Expectation of business, Subsidies and taxes, and Technology. The farming industry has had to ramp up production of corn to satisfy the demand that was caused by the increase in the number of buyers. More buyers will generate more income, so most likely farmland will be used to produce more corn. The determinants of Number of buyers and Income are responsible for this demand shift. The land available for soybean crops will decrease, resulting in a reduction of supply. This supply shift is the result of Producers (number of).…
7. In an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price and an 11 percent increase in advertising. If the price elasticity of demand is −1.5 and the advertising elasticity of demand is +0.6, would you expect an increase or decrease in total revenues?…
7. In an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price and an 11 percent increase in advertising. If the price elasticity of demand is −1.5 and the advertising elasticity of demand is +0.6, would you expect an increase or decrease in total revenues?…
For example, if a profit maximizing businessman increases the price of an elastic goods from $10 to $12, and the quantity demanded decreases from 16pieces to 10pieces. The price elasticity of…
| Increase in supply and demand because manufacturing faster increases supply which decreases price causing an increase in demand.…
1. Who is likely to be more affected by tax increases on cigarettes: all adults or young adults? Why? Cite elasticity of demand estimates from the article to support you answer.…
If the price of graham crackers is $2.50 should firms raise or lower their prices if they want to increase revenue? Explain this in terms of elasticity.…
If the price of graham crackers is $2.50 should firms raise or lower their prices if they want to increase revenue? Explain this in terms of elasticity.…