Question

Consider the market for the EppiPencil, a device which calibrates and auto-injects the drugepinephrine in order to combat an allergic reaction. Assume the initial price of the drugwas $50 per unit, and at that price there were 2,000 units sold. Miland, the manufacturerof the EppiPencil, has hired you as an economic consultant. You are tasked with increasingrevenues for the company. After some research, you discover that if you raise the price of theEppiPencil to $75, consumers will be willing to purchase 1,500 units.

Based on the information above:1. At the initial price of $50 per EppiPencil, how much revenue would the total salesof 2000 EppiPencils create for Miland?:Revenue= $– If you recommend the option to raise the price to $75 and sell 1500 EppiPen-cils:2. At the new price of $75 per EppiPencil, how much revenue would the total sales of1500 EppiPencils create for Miland?:Revenue= $3. Calculate the Percentage Change in Price: ∆P=%4. Calculate the Percentage Change in Quantity Demanded (be careful with the sign):∆Qd=%5. Calculate the Price Elasticity of Demand (DO NOT use the Mid-Point Method)(DONOT take the absolute value): (be very careful with the sign)εpd=6. Based on your answer above, Demand for EppiPencils would be considered:(a) Perfectly Inelastic(b) Inelastic(c) Unit Elastic(d) Elastic(e) Perfectly Elastic–****Assuming the same Price Elasticity of Demand calculated above:****7. If you instead recommended that Miland lower the price from $50 to $40, how manyEppiPencils would you expect to sell?Qd=8. At the new price of $40 per unit, how much revenue would the total sales of Ep-piPencils create for Miland?:Revenue= $– Based on all of the information above:9. If Milandraisesthe Price of EppiPencils (from $50 to $75), total revenues collectedwill(increase/decrease).10. If Milandlowersthe Price of EppiPencils (from $50 to $40), total revenues collectedwill(increase/decrease).11. Therefore, in order to meet Miland’s goal of maximizing revenues, from the followingoptions you should recommend that Miland:(a) Decrease the price to $40(b) Maintain the price at $50(c) Increase the price to $752

Let’s take this a step further, and assume that Miland actually cares aboutmaximizing Profits, and not specifically revenues.– Assume that Miland faces a constant Marginal Cost of $45 per EppiPencilit produces.12. Calculate the Net Profit that Miland will earn if EppiPencils are sold at a price of$40 each. :Profit= $13. Calculate the Net Profit that Miland will earn if EppiPencils are sold at a price of$50 each. :Profit= $14. Calculate the Net Profit that Miland will earn if EppiPencils are sold at a price of$75 each. :Profit= $15. Therefore, in order to meet Miland’s goal of maximizing PROFIT, from the followingoptions you should recommend that Miland:(a) Set the price at $40(b) Set the price at $50(c) Set the price at $75

Answer 1

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