Question

The retail price of a new phone is $150 and the quantity demanded is 1,000,000 units. If the price of the device increases to $200, the quantity demanded is 600,000 units. What is the price elasticity of the phone? Interpret the answer in one sentence.

Calculate the variable cost per unit of a microwave, if the fixed cost of the company is $5 million, selling price per unit is $100, and breakeven point is 62,500 units.

Answer 1

Q1.
Increase in price = 200-150 = 50
% increase in price = 50/150 = 33.33%
Decreasse in Qty demanded = 600000-1000000 = -400000
% decrease in Qty = -400000/1000000 = -40%
Price elasticity of demand = % change in Qty / % change in price
		( -40% /33.33%) =   - 1.20
Price elasticity of demand = (1.20)
Q2.
CM per unit = Fixed cost / Break even units
		5000,000 / 62500 =80 perr unit
VC per unit = Selling price - CM per unit
	100-80 = 20.00 per unit