Economic Forecasting. Assume you are a cartoon artist at a local theme park. At your current...

Economic Forecasting. Assume you are a cartoon artist at a local theme park. At your current price, $8.50, you sell 500 sketches a month. As a result of a $1.00 price increase sales reduced by 100 sketches.

What is the demand elasticity of your sketches? Interpret your results.
Assume your marginal cost is $4. What is your desired margin and your current margin? Interpret these numbers.
Was your price strategy profitable? Why or why not?

Solutions

Expert Solution

The price elasticity of demand for the sketches is 1.7 it means greater than 1. It is termed as high elastic demand, this is beneficial in case of price cut and will have an adverse effects when price is increased as the case of given problem.

Margin is generally calculated per unit as followes (Price-Marginal cost), you also calculate margin or profit on all the units demanded..

This price strategy of price increase will not be profitable for the sketch artist in the given case as it will reduce the total revenue as well as total profit margin on total sales.

Rahul Sunny answered 1 year ago

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