Question

Suppose you are the manager of a firm that produces three goods: R, S and T. The price Elasticity of demand for R is 1.2, for S it is 1.00 and for T it is 0.75. The firm experience serious cash flow problems and you have to increase total revenue as soon as possible. if you were in a position to set the price for the goods. what would be your pricing strategy for each product? provide reasons for your answers.

Answer #1

Since absolute value of elasticity of demand for good R is higher than 1, its demand is elastic.

Since absolute value of elasticity of demand for good S is equal to 1, its demand is unit elastic.

Since absolute value of elasticity of demand for good T is lower than 1, its demand is inelastic.

The more inelastic (elastic) the demand for a good, the less (more) responsive its quantity demanded is to a change in price. Therefore, when a good is elastic (inelastic), total revenue increases if its price decreases (increases). Accordingly, price of good R should be decreased and price of good T should be increased to raise total revenue. Since good S has unit elastic, demand, a change in its price will keep its revenue unchanged.

Pricing Strategy, Sales Variances Eastman, Inc., manufactures
and sells three products: R, S, and T. In January, Eastman, Inc.,
budgeted sales of the following. Budgeted Volume Budgeted Price
Product R 111,400 $28 Product S 162,300 22 Product T 15,900 19 At
the end of the year, actual sales revenue for Product R and Product
S was $3,094,200 and $3,654,000, respectively. The actual price
charged for Product R was $27 and for Product S was $21. Only $9
was charged for...

Pricing Strategy,
Sales Variances
Eastman, Inc.,
manufactures and sells three products: R, S, and T. In January,
Eastman, Inc., budgeted sales of the following.
Budgeted
Volume
Budgeted
Price
Product R
113,200
$27
Product S
154,500
22
Product T
21,500
21
At the end of the
year, actual sales revenue for Product R and Product S was
$3,018,600 and $3,314,000, respectively. The actual price charged
for Product R was $26 and for Product S was $20. Only $10 was
charged for...

Pricing Strategy, Sales Variances
Eastman, Inc., manufactures and sells three products: R, S, and
T. In January, Eastman, Inc., budgeted sales of the following.
Budgeted
Volume
Budgeted
Price
Product R
118,800
$28
Product S
145,300
21
Product T
17,500
19
At the end of the year, actual sales revenue for Product R and
Product S was $3,190,200 and $2,986,800, respectively. The actual
price charged for Product R was $26 and for Product S was $19. Only
$9 was charged for...

Pricing Strategy, Sales Variances
Eastman, Inc., manufactures and sells three products: R, S, and
T. In January, Eastman, Inc., budgeted sales of the following.
Budgeted
Volume
Budgeted
Price
Product R
110,500
$26
Product S
149,300
23
Product T
21,200
21
At the end of the year, actual sales revenue for Product R and
Product S was $2,709,600 and $3,590,400, respectively. The actual
price charged for Product R was $24 and for Product S was $22. Only
$10 was charged for...

Pricing Strategy, Sales Variances
Eastman, Inc., manufactures and sells three products: R, S, and
T. In January, Eastman, Inc., budgeted sales of the following.
Budgeted
Volume
Budgeted
Price
Product R
114,900
$28
Product S
148,400
20
Product T
22,700
20
At the end of the year, actual sales revenue for Product R and
Product S was $3,159,000 and $3,081,800, respectively. The actual
price charged for Product R was $27 and for Product S was $19. Only
$10 was charged for...

Pricing Strategy, Sales Variances
Eastman, Inc., manufactures and sells three products: R, S, and
T. In January, Eastman, Inc., budgeted sales of the following.
Budgeted
Volume
Budgeted
Price
Product R
104,800
$28
Product S
150,000
23
Product T
20,900
23
At the end of the year, actual sales revenue for Product R and
Product S was $2,921,400 and $3,601,400, respectively. The actual
price charged for Product R was $27 and for Product S was $22. Only
$13 was charged for...

You are the manager of a firm that produces apple
pies. You are considering employing an additional worker, but you
want to know what effect the new worker will have on production.
Based on your knowledge of how your firm produces its apple pies
you have the production function
q =K^1/2*L^1/2, where L represents the number of workers. Since you
are contemplating making the hire very soon you know that your
capital is fixed at 10. What effect will hiring...

A monopolistic firm produces goods in a market where the demand
function is P = 43 − 0.3Q and the corresponding total cost
function is TC=0.01Q^3-0.4Q^2+3Q
e) Calculate the price elasticity of demand at the profit
maximizing Q (use Q>0). Comment (elastic, inelastic or unit
elastic?) on the calculated price elasitity of demand. Is the good
is necssary or luxary?
f) What would happen to the revenue of the firm if price goes
down? [Use the vlaue of price...

4. You are the manager of a firm with total cost given by
TC = 5,000 + 100Q
where Q denotes quantity. The demand for the firm is determined
by
Q = 800 – 4P
where P denotes price.
4. (a) What is the maximum revenue for your firm?
(b) What is the price elasticity of demand at the price and
quantity that maximize revenue? Justify your answer.
(c) What is the maximum profit for your firm?
4. You are...

4. You are the manager of a firm with total
cost given by
TC = 5,000 + 100Q
where Q denotes quantity. The demand for the firm is determined
by
Q = 800 – 4P
where P denotes price.
4. (a) What is the maximum
revenue for your firm?
(b) What is the price elasticity of demand at
the price and quantity that maximize revenue? Justify your
answer.
(c) What is the maximum profit
for your firm?
4. You are...

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