Question

Budweiser has decided to decrease the price of a 6 pack of beer from $9.50 to...

Budweiser has decided to decrease the price of a 6 pack of beer from $9.50 to $8.25 as a result of the price decrease demand has increased from 240,000 6 packs per week to 268,000 6 packs per week. Should they decrease their price, what is the Ed coefficient, is the demand elastic, inelastic, or unit elastic? What happened to the total revenue? As the economist for Budweiser do you recommend this move, why or why not?

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Homework Answers

Answer #1

Ans: They should not decrease the price.

Ans: Ed =   -0.79 or absolute value is 0.79

Explanation:

P1 = $9.50 , P2 = $8.25

Q1 = 240000 , Q2 = 268000

Ed  =  

= ( 28000 / - 1.25 ) * [ ( 9.5 + 8.25 ) / ( 240000 + 268000 )

= -22400 * ( 17.75 / 508000 )

= - 0.7826 or -0.79

Ans: Demand is inelastic

Explanation:

Here the demand is inelastic because Ed coefficient is less than 1 .

Ans: Total revenue will decrease

Explanation:

Total revenue before change in price = $9,50 * 240000 = $2,280,000

Total revenue after change in price = $8.25 * 268000 = $2,211,000

Ans: As the economist for Budweiser you should not recommend this move due to decrease in total revenue.

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