Question

In: Finance

A manufacturer reduces the price of its digital cameras by from OMR 100 to 80 and,...

A manufacturer reduces the price of its digital cameras by from OMR 100 to 80 and, as a result, the volume of sales as demanded in the market rises from 200 to 600 units. Answer the questions: Q1. Calculate the price elasticity of demand with clear steps of working. [4marks] Q2. The observed value belongs to which type price elasticity demand. [1mark] Q3. Based on the answer of question 1 and question 2 analyse the elasticity graph and explain in your own words. (5marks]


Solutions

Expert Solution

Q1. Calculate the price elasticity of demand with clear steps of working.

Price Elasticity of Demand = Percentage Change in Quantity demanded / Percentage Change in Price

Percentage Change in Quantity demanded = (600 -200) /200

= 200%

Percentage Change in Price = 80 -100 /100 = -20%

Therefore

Price Elasticity of Demand = 200%/-20% = -10

Negative sign indicates inverse relationship between increase in price and increase in demand.

Q2. The observed value belongs to which type price elasticity demand.

The observed value belongs to elasticity elastic type price elasticity demand as it is more than one. That means if there is one percentage change in price, demand will increase more than one percentage

Q3. Based on the answer of question 1 and question 2 analyze the elasticity graph and explain in your own words.

Question 1 and question 2 indicates that the percent change in demand is more than the percent change in price or corresponding increase in percentage of demand is more the percentage cut in the price. The revenue will increase from the price cut because demand is relatively more elastic.

Revenue before Price change = Price * quantity demanded = 100 * 200 = 20,000

Revenue after Price change = Price * quantity demanded = 80 * 600 = 48,000

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Lulu hyper market reduces the price of oranges from OMR 5 per kg to OMR 3....
Lulu hyper market reduces the price of oranges from OMR 5 per kg to OMR 3. Hence, the weekly sales increase from 8,000 to 10,000 units. Answer the questions: Q1. Calculate the price elasticity of demand with clear steps of working.    Q2. The observed value belongs to which type of price elasticity of demand. Q3. Describe in your own idea the demand situation and the shape of its curve in relation to the market changes.   
Candid, Inc., is a manufacturer of digital cameras. It has two departments: assembly and testing. In...
Candid, Inc., is a manufacturer of digital cameras. It has two departments: assembly and testing. In January 2020, the company incurred $800,000 on direct materials and $805,000 on conversion costs, for a total manufacturing cost of $1,605,000. Assume there was no beginning inventory of any kind on January 1, 2020. During January, 5,000 cameras were placed into production and all 5,000 were fully completed at the end of the month. What is the unit cost of an assembled camera in...
Equivalent units, zero beginning inventory. Candid, Inc., is a manufacturer of digital cameras. It has two...
Equivalent units, zero beginning inventory. Candid, Inc., is a manufacturer of digital cameras. It has two departments: assembly and testing. In January 2014, the company incurred $800,000 on direct materials and $805,000 on conversion costs, for a total manufacturing cost of $1,605,000. 1. Assume there was no beginning inventory of any kind on January 1, 2014. During January, 5,000 cam-eras were placed into production and all 5,000 were fully completed at the end of the month. What is the unit...
A 4 percent increase in the price of digital apps reduces the amount of tablet devices...
A 4 percent increase in the price of digital apps reduces the amount of tablet devices demanded by 10percent. The cross price elasticity of demand is__. ​(Enter your response rounded to two decimal places and include a minus sign if​ necessary.)
17-16 Equivalent units, zero beginning inventory. Candid, Inc., is a manufacturer of digital cameras. It has...
17-16 Equivalent units, zero beginning inventory. Candid, Inc., is a manufacturer of digital cameras. It has two departments: assembly and testing. In January 2014, the company incurred $800,000 on direct materials and $805,000 on conversion costs, for a total manufacturing cost of $1,605,000. 1. Assume there was no beginning inventory of any kind on January 1, 2014. During January, 5,000 cam-eras were placed into production and all 5,000 were fully completed at the end of the month. What is the...
The Camera Shop sells two popular models of digital SLR cameras (Camera A Price: 200, Camera...
The Camera Shop sells two popular models of digital SLR cameras (Camera A Price: 200, Camera A Price: 300). The sales of these products are not independent of each other, but rather if the price of one increase, the sales of the other will increase. In economics, these two camera models are called substitutable products. The store wishes to establish a pricing policy to maximize revenue from these products. A study of price and sales data shows the following relationships...
The Camera Shop sells two popular models of digital SLR cameras (Camera A Price: 200, Camera...
The Camera Shop sells two popular models of digital SLR cameras (Camera A Price: 200, Camera B Price: 300). The sales of these products are not independent of each other, but rather if the price of one increase, the sales of the other will increase. In economics, these two camera models are called substitutable products. The store wishes to establish a pricing policy to maximize revenue from these products. A study of price and sales data shows the following relationships...
The Camera Shop sells two popular models of digital SLR cameras (Camera A Price: 230, Camera...
The Camera Shop sells two popular models of digital SLR cameras (Camera A Price: 230, Camera B Price: 310). The sales of these products are not independent of each other, but rather if the price of one increase, the sales of the other will increase. In economics, these two camera models are called substitutable products. The store wishes to establish a pricing policy to maximize revenue from these products. A study of price and sales data shows the following relationships...
Below are selected financial information from GoPro Inc., the manufacturer of mountable and wearable cameras and...
Below are selected financial information from GoPro Inc., the manufacturer of mountable and wearable cameras and accessories.   GoPro, Inc. Balance Sheet                                              FY 2018               FY 2017 Cash & Cash Equivalent    $152,095            $202,504 Marketable Securities                     45,417                 44,886 Accounts Receivable, net             129,216               112,935 Inventory                                        116,458               150,551 Prepaid Expenses                            30,887                 62,811 Total Current Assets                   $474,073             $573,687 Accounts Payable                          $148,478            $138,257 Accrued Liabilities                           135,892              213,030 Unearned Revenue                           15,129                 19,244 Total Current Liabilities               $299,499            $370,531 A. In two paragraphs please define what the Acid-Test ratio is, and explain its importance in the analysis of a company's liquidity position. Then calculate the Acid-Test...
When a monopolist changes from charging a single price to perfect price discrimination, it a. Reduces...
When a monopolist changes from charging a single price to perfect price discrimination, it a. Reduces the quantity produced and maintains profits at a fixed level. b. Reduces the firm’s profits and output. c. Increases consumer surplus and decreases producer surplus. d. Increases profits and eliminates consumer surplus
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT