Question

5. Shawn started an online store at ebay selling graphic t-shirts. In order to have mobile internet access, he subscribed AT&T mobile broadband $79 per month. Steve purchased the t-shirt from whole sale price of $6.50 and sells it for $19.99 at ebax Also each t-shirt costs him $7 to design and print. Please calculate the break event point for Steve's t-shirt business. 6. NCC mem's basketball team raised ticket price from $15 to $18 last season. The ticket sales dropped from average 4,500 to 4,100 per game. (1) Please calculate the price elasticity of demand. (2) calculate the revenue change after the price drop

Answer 1

Fixed Cost for Shawn = $79

Contribution per unit = Selling price per unit - Variable Costs per unit

= $19.99 - ( $6.50 + $7)

= $19.99 - $13.5

= $6.49

Break Even Point (units) = Fixed Cost / Contribution per unit

= $79 / $6.49

= 12.17 units per month or 13 units

b)

(1)

Price elasticity of demand = percentage change in demand / percentage change in price

Percentage change in demand = ($18 -$15) / $15 * 100

= $3 / $15 * 100

= 20%

Percentage change in price = (4,500 - 4,100) / 4,500 * 100

= 400 / 4500 * 100

= 8.89%

Price elasticity of demand = 20% / 8.89% = 2.247 or 2.25

(2)

Orginal Revenue = $15 * 4,500 = $67,500

New Revenue = $18 * 4,100 = $73,800

Change in Revenue = $73,800 - $67,500 = $6,300 ( Increase )