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Answer to Question #67576 in Economics of Enterprise for Steven

Question #67576
Suppose that you are the managing director of a firm that supplies three goods: laptops, USB drives and external hard drives. The price elasticity of the demand for laptops is 2.0; for USB drives it is 1, 00; and for external hard drives it is 0, 53. The firm is experiencing serious cash flow problems and you have to increase total revenue as soon as possible. You are in a position to set the prices for these goods. What would be your pricing strategy for each product? Motivate your decisions.
Expert's answer
he price elasticity of the demand for laptops is 2.0; for USB drives it is 1,00; and for external hard drives it is 0,53.
If the firm is experiencing serious cash flow problems and you have to increase total revenue as soon as possible, then our pricing strategy will be built on assumption, that we should increase price for products with inelastic demand and decrease price for products with elastic demand. So, we should increase price for external hard drives and decrease price for laptops and USB drives to increase total revenue.

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