You own a company that manufactures beef products to sell. Your company needs to forecast sales...

You own a company that manufactures beef products to sell. Your company needs to forecast sales for the next year to purchase raw materials and plan production. You collect historical data on beef consumption, consumer income, and the prices of beef.

A. Your data indicates that when the price of beef was $ 2.80 per pound that you sold 80,000 pounds of beef. When the price was $ 2.20 per pound, you sold 92,000 pounds of beef. Calculate the arc price elasticity of demand for beef. Is beef demand inelastic or elastic? Explain. What would happen to your revenue if you lowered the price of beef? Explain.

B. Your data also indicates that the income elasticity of demand for beef is 0.85. If consumer income increases by 5%, what will happen to the quantity of beef sold (in percentage terms)? Is beef a necessity or luxury good? Explain.

Expert Solution

Answer: All answers are attached below,

In part (a) Revenue will fall because price elasticity of demand is fall. Because when prices fall, increase in demand will not outweigh the decrease in price. Supplier will earn low revenue.

Rahul Sunny answered 2 years ago

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