Answer to Question #67742 in Microeconomics for thuli

Question

Suppose you are the mananaging 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; 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. (10)

Answer 1

If price elasticity of the demand bigger than 1, increasing of price will decrease revenue. If price elasticity of the demand less than 1, increasing of price will increase revenue. If price elasticity of the demand bigger than 1, changing in price will not have effect on revenue. So, to increase revenue the managing director have to increase price of external hard drives and decrease price of laptops.