Answer to Question #67423 in Microeconomics for hassan mwale
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 demand for laptops is 2.0; for USB drives it is 1,00; and external 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 price for these goods.what would be your pricing strategy for each product? motivate your decisions.
If good’s demand is elastic (Ke>1), as it happens with laptops, the price decreasing leads to quantity increasing in a greater extent, and total revenue rises. So, it is expediently to decrease the price for laptops. If good’s demand is inelastic (Ke<1), as it happens with external drives, the price decreasing leads to quantity increasing in a smaller extent, and total revenue falls, and vice versa. So, it is expediently to increase the price for external drives. If Ke=1, as it happens with USB drives, it doesn’t matter how the price changes: the quantity demanded changes in the same extent, and total revenue doesn’t change.