Answer to Question #24354 in Economics of Enterprise for YOHAN

Question

Confused!!! Calculate the elasticity for DMS. is the demand elastic or inelastic?

DMS is looking to stimulate demand such that the excess supply is covered. In the coming few months DMS noticed that a 25% drop in price led to a 10% increase in demand. There appeared to be concerns about responsiveness of consumers. In terms of its overall performance DMS is experiencing loss and needs revenue boost. Following investment in machinery in 2012 DMS lowered its Marginal cost. This brought Average cost down for the first six months of the year. Subsequently due to a rise in taxes and interest rates the Marginal cost rose. Thus the first six months saw a drop in total costs and the next half saw a gradual rise