Question

Google Pixel. The demand for the Google Pixel has a constant elasticity of ε = −3. The cost of manufacturing a watch is $200. The current price is $350. Should the price be adjusted upward or downward? Justify your answer.

Answer 1

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Solution

The price of google pixel =$ 350

cost of a google pixel = $200

price elasticity of demand for google pixel = -3

that means if the price of google pixel decreases by 1% then the demand for google pixel increases by 3%

so there should be a downward shift in price because here per unit price is higher the pe unit cost so by 1 % decreases in price leads to 3% increases so total revenue increases by 2%

(change in total revenue = change in price +change in quantity

change in total revenue = -1+3

change in total revenue =2%)