Question

In: Economics

All of the following can affect a​ firm's total revenue except which​ one? opportunity costs discounts...

All of the following can affect a​ firm's total revenue except which​ one?

  1. opportunity costs
  2. discounts
  3. rebates
  4. returns

Amazon buys BestBuy and increases the prices of all goods by 30%. As a result, the company now sells 115,000 units instead of 210,000 units for the quarter. What is the elasticity of demand?

A. 2.0

B. 3.0

C. .50

D. 4.0

Solutions

Expert Solution

For the first question, the answer is A. opportunity costs.

Total Revenue implies the value of all goods the firm sells or sales multiplied by the price of goods.

If discounts are offered, prices are lowered and this will bring down revenue. If a firm offers rebates on its products, it will also affect revenue. For instance, cash vouchers or coupons. Similarly, if returns are allowed, this may also affect revenue, depending upon the type of return.

But opportunity costs or the returns from the second best alternative that have to be foregone to produce this good, will not affect the good's revenue. It will affect the profit, but not the total revenue.

For the second question, the answer is 1.5.

Let's calculate the percentage change in quantity demanded due to change in price.

Given Percentage change in Price is 30%. So elasticity is simply -

Rahul Sunny answered 1 year ago
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