Answer to Question #189118 in Microeconomics for Rexford Obour

Question #189118

DBS Farms is a producer and retailer of farm products. DBS main products are Mangoes,

Pawpaw and Pineapples. The current price of the Mangoes per Kilogram is GHS 50, the

Pawpaw/Kg is GHS 80 and the Pineapple is GHS 40. This year the DBS Farms sold 10,000

kgs of Mangoes, 20,000 kgs of Pawpaw and 1 million kgs of Pineapples. In an attempt to

improve revenue, the managers of the firm have decided to increase all prices by 10%.

Market research has suggested that the price elasticity of demand for each product is:

Mangoes: - 1.5; Pawpaw: -2.5; Pineapples: - 0.6. You have been asked to evaluate the

planned price increases.

a. Comment on the planned price changes.

b. Would a 10% price reduction have been better for some or all of the products?


1
Expert's answer
2021-05-04T12:18:45-0400

Given 

The current price of the Mangoes per Kilogram is GHS 50 and the quantity is 10,000 kgs of mangoes. 

The current price of the Pawpaw/Kg is GHS 80 and the quantity is 20,000 kgs of Pawpaw. 

The current price of the Pineapple is GHS 40 and the quantity is 1 million kgs of pineapples. 

The price elasticity of demand for each product is:

Mangoes: - 1.5

Pawpaw: -2.5

Pineapples: - 0.6.


Total revenue in the current prices are:

Total revenue from Mangoes 

Total revenue from Pawpaw 

Total revenue from pineapples 

Total revenue from all fruits 


Now the new prices and the quantity. 

Price elasticity of demand 


For Mangoes. 

New price = 55. New quantity = 85,000 

New total revenue = 55 × 85000 = 467,500. 


For Pawpaw. 

New price = 88, New quantity = 15,000. 

New total revenue = 88 × 15,000 = 1,320,000 


For pineapples. 

New price = 44, New quantity = 9,400,000. 

Total revenue = 41,360,000.

 

New total revenue from all the fruits 


price increase by 10% has given increase in revenue but it is advisable to increase price only in pineapple.

price reduction 10% will be advisable in mango and pawpaw based on price elasticity of demand.


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