Question

In: Economics

Your marketing department just undertook a major advertisingcampaign promoting the quality of your Best Brand...

Your marketing department just undertook a major advertising campaign promoting the quality of your Best Brand Bike Shorts—BBB Shorts.

They have provided you with an estimate of the success of the campaign stating: “the price elasticity of demand has decreased from-5.76 to -3.76.”

Before the campaign, your price was $240 per pair of BBB Shorts. What should the new price be?

Please enter the new price here: $

Solutions

Expert Solution

Old price elasticity of demand = - 5.76

New price elasticity of demand = - 3.76

Old price = $ 240

We can use the following formula to determine the marginal cost.

In case of old elasticity of demand (use the absolute value of elasticity)

Now in case of new elasticity the same value of MC can be used.

New price = $ 270.19

 

Rahul Sunny answered 2 years ago
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