The manager of Beta Company is considering to sell its new product at the price of...
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The manager of Beta Company is considering to sell its new product at the price of $500 and the price elasticity of demand at the price range is -0.8. (i) What is the marginal revenue from the sales of the product at the demand point? and (ii) As a consultant to this company, are you going to recommend to the company a higher price or a lower price than $500? |
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Homework Answers
b) MR = -$125 and recommend a higher price.
(i) P = $500; absolute value of elasticity of demand, e =
0.8
So, MR = P[1-(1/e)] = 500[1-(1/0.8)] = 500(1-1.25) = 500(-0.25) =
-125
(ii) As demand is inelastic (because 0.8 < 1) so revenue can be increased by increasing the price. Thus, as a consultant higher price than $500 should be advised.
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