Suppose that the elasticity of demand at a given price level is E(p)-D1.5. What does that mean? Select both the correct answer to elastic, unit, or inelastic as well as what the company should do to increase revenue. Since E(p)>1, demand is unit. Since E(p)>1, demand is elastic. The company should leave prices alone as the revenue is currently maximized. O Since E(p)>1, demand is inelastic. O The company should raise prices to raise revenue. The company should lower prices to raise revenue.

Suppose that the elasticity of demand at a given price level is E(p)-D1.5. What does that mean? Select both the correct answer to elastic, unit, or inelastic as well as what the company should do to increase revenue. Since E(p)>1, demand is unit. Since E(p)>1, demand is elastic. The company should leave prices alone as the revenue is currently maximized. O Since E(p)>1, demand is inelastic. O The company should raise prices to raise revenue. The company should lower prices to raise revenue.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter5: Elasticity

Section: Chapter Questions

Problem 6SCQ: Suppose you are in change of sales at a pharmaceutical company, and your firm has a new drug that...

See similar textbooks

Similar questions

The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decayfigh ter, reduced the price of its electric toothbrush from $35 to $30. As a result, Stopde cays sales declined by 1,500 units per month. What is the arc cross elasticity of demand between Stopdecays toothbrush and Decayfighters toothbrush? What does this indicate about the relationship between the two products? If Stopdecay knows that the arc price elasticity of demand for its toothbrush is 1.5, what price would Stopdecay have to charge to sell the same number of units as it did before the Decayfighter price cut? Assume that Decayfighter holds the price of its toothbrush constant at $30. What is Stopdecays average monthly total revenue from the sale of electric toothbrushes before and after the price change determined in part (b)? Is the result in part (c) necessarily desirable? What other factors would have to be taken into consideration?
A movie production company faces a linear demand curve for its film, and it seeks to maximize total revenue from the films distribution. At what level should the price be set? Where is demand elastic, inelastic, or unit elastic? Explain.
What would the gasoline price elasticity of supply mean to UPS or FedEx?
Describe the general appearance of a demand or a supply curve with infinite elasticity.
Can you think of an industry (or product) with near infinite elasticity of supply in the short term? That is, what is an industry that could increase Qs almost without limit in response to an increase in the price?
Suppose you are in change of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your companys product at the current price is 1.4, would you advise the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.
Suppose you learned that the price elasticity of demand for wheat is 0.7 between the current price for wheat and a price 2 higher per bushel. Do you think that farmers collectively would try to reduce the supply of wheat and drive the price up 2 higher per bushel? Explain your answer. Assuming that they would try to reduce supply, what problems might they have in actually doing so?
The price elasticity of demand for personal computers is estimated to be 2.2. If the price of personal computers declines by 20 percent, what will be the expected percentage increase in the quantity of computers sold?
Explain why using the midpoint formula for calculating the elasticity of demand gives the same result whether price increases or decreases, but using the initial price and quantity instead of the average does not.
Why is the demand curve with constant unitary elasticity concave?
Suppose the price elasticity of demand for heating oil is 02. in the short run and 0.7 in the long run. a.If the price of heating oil rises from 1.80 to 2.20 per gallon, what happens to the quantity of heating oil demanded in the short run? In the long run? (Use the midpoint method in your calculations.) b.Why might this elasticity depend on the time horizon?
From the data in Table 5.6 about supply of alarm clocks, calculate the price elasticity of supply from: point J to point K, point L to point M, and point N to point P. Classify the elasticity at each point as elastic, inelastic, or unit elastic.