The manager of Viking Sports finds that the price elasticity of baseball bats is ?0.77. He wants to hold a sale to get rid of his inventory. What will you advise him?
What will be an ideal response?
A price elasticity of ?0.77 suggests that baseball bats face inelastic demand. Therefore, if you lower the price, total revenue will fall. So he should not hold a sale. Rather, he could increase the price and gain in revenue.
No. The best price to charge is when you can sell the product to half of the market. If the price is $0, then you can sell 100 units potentially. But if you set the price at P = $25, you can sell exactly 50 units, or to half of the potential market. Thus, $25 is the best price. At a price of $25, you will receive a revenue of $25 x 50 units = $1,250, which will be the maximum revenue. At $15, you only make $15 x 70 = $1,050.
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