The president of a toy company asks you for advice about whether the company should cut the price of its best-selling doll this year based on the following information: last year the company cut the price of its best-selling doll by 10% and the total
revenues from doll sales increased by 10%.
Please provide the best answer for the statement.
The total revenue test indicates that the price elasticity of demand for the doll in last year’s price range was unit elastic, or 1. If the firm cuts the doll’s price this year, then it will most likely put the price of the doll in the inelastic range of demand, and thus a percentage change in price will lead to a greater percentage change in quantity in this range, causing total revenues to fall. You should advise the president not to cut the price because the firm is maximizing its total revenue.
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Nonexcludability is a matter of degree. As the cost of excluding individuals rises, _____
a. the marginal cost of provision increase b. the marginal cost of provision decreases c. the probability of free riding declines d. the probability of free riding increases
Unanticipated inflation penalizes: a. those who are saving
b. those who are borrowing. c. governments. d. those who are in high-growth industries where wages are growing faster than prices. e. those who can't find jobs at any wage rate.
Consider John, who purchases an insurance policy on a racquetball racket that he has acquired. He then proceeds to hit his racket against the wall every time he losses a point. This is an example of
A. an adverse selection problem. B. co-insurance. C. a moral hazard problem. D. signaling.
In symbolic terms where Y equals real GDP, POP equals total population, and N equals the number of employed workers, Y/POP must equal:
A. Y/N × N/POP. B. N/Y × N/POP C. N/Y × POP/N. D. Y/POP × N/POP