Answer to Question #67720 in Macroeconomics for shar

Question

2.3 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

Answer 1

The price of laptops can not be changed because the elasticity of demand E> 1 (the demand is elastic).
For USB drives E = 1 and this means that for any price change, demand will change by the same amount as the price.
We have to change the price of external hard drives, for them E <1 (the demand is not elastic). This means that when the price changes by 1%, demand will change by 0.53% (a change in the demand level is less than a change.The price of laptops can not be changed because the elasticity of demand E> 1 (the demand is elastic).