Question
In: Economics
Elasticity and Pricing
Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company’s product at the current price is 1.4, would you advise the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer
Solutions
Expert Solution
If the elasticity is 1.4 at current prices, you would advice the company to reduce its price on the product. A decrease in price will be offset by the increase in the total units of the drug sold. If the elasticity was 0.6, you would advice the company to increase its price, since increase in the price will offset the decrease in the total amounts sold and increase the revenue. If elasticity is 1, you would recommend the company to maintain its current price level beacuse the total revenue is already maximized.
Price elasticity is a mesasure of how sensitive quantity demanded or supplied of a product is to its price.
Joes answered 3 years agoRelated Solutions
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Recently, Verizon Wireless ran a pricing trial in order to estimate the elasticity of demand for...
Recently, Verizon Wireless ran a pricing trial in order to
estimate the elasticity of demand for its services. The manager
selected three states that were representative of its entire
service area and increased prices by 5 percent to customers in
those areas. One week later, the number of customers enrolled in
Verizon’s cellular plans declined 4 percent in those states, while
enrollments in states where prices were not increased remained
flat. The manager used this information to estimate the own-price...
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estimate the elasticity of demand for its services. The manager
selected three states that were representative of its entire
service area and increased prices by 5 percent to customers in
those areas. Two weeks later, the number of customers enrolled in
Pacific’s cellular plans declined 4 percent in those states, while
enrollments in states where prices were not increased remained
flat. The manager used this information to estimate the own...
Recently, Verizon Wireless ran a pricing trial in order to estimate the elasticity of demand for...
Recently, Verizon Wireless ran a pricing trial in order to
estimate the elasticity of demand for its services. The manager
selected three states that were representative of its entire
service area and increased prices by 5 percent to customers in
those areas. One week later, the number of customers enrolled in
Verizon’s cellular plans declined 4 percent in those states, while
enrollments in states where prices were not increased remained
flat. The manager used this information to estimate the own-price...
Recently, Verizon Wireless ran a pricing trial in order to estimate the elasticity of demand for...
Recently, Verizon Wireless ran a pricing trial in order to
estimate the elasticity of demand for its services. The manager
selected three states that were representative of its entire
service area and increased prices by 5 percent to customers in
those areas. One week later, the number of customers enrolled in
Verizon’s cellular plans declined 4 percent in those states, while
enrollments in states where prices were not increased remained
flat. The manager used this information to estimate the own...
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