Question

In October, Samsung will roll out a new version of its popular smartphone, the Samsung Note...

In October, Samsung will roll out a new version of its popular smartphone, the Samsung Note 8. Smartphones are said to have a relatively elastic demand curve. Therefore, to increase total revenues, the Marketing Manager plans to decrease the price of the Samsung Note 8 in an attempt to increase total revenue. However, the COO believes that an increase in the price of the new Samsung Note 8 will increase Samsung’s total revenue. Which of the following assumption is valid?

1)

 The COO is correct as demand for mobile phone is price elastic.

2)

 The Marketing Manager is correct as demand for smartphones is price elastic.

3)

 The COO is correct as demand for mobile phone is unit elastic.

4)

 The Marketing Manager is correct as demand for smartphones is price inelastic
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Answer #1

Ans: option 2.

The marketing manager is correct as demand for smart phones is price elastic

Since it's mentioned that the demand for smart phones is relatively elastic demand curve. When the demand is relatively elastic, a small change in price will affect largerly on the quantity. Relatively elastic demand curve implies that the change in quantity demanded is greater than the change in price. Therefore when the price of Samsung Note 8, the demand for the phone will be increased and hence the revenue will be increased.

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