Microeconomics HELP!!

Forums: Homework, Microeconomics
Email this Topic • Print this Page

You are the Vice President for Marketing and Pricing Strategy for a company that makes the popular energy drink, OrangeCow. Your minions have concluded that your product is priced about $0.10 less than its closest competition. They also tell you that the price elasticity of demand for your product is 1.2. The CEO, who also got the report from your staff but who has never taken an economics course, calls you and wants to know what you plan to do (if anything) about the price of OrangeCow. Your goal (and the CEO's) is to maximize profit. Since your production costs are a constant function of the quantity you produce, you are just trying to maximize revenue. Explain what you will tell the CEO and your reasoning.

Topic Stats
Top Replies
Link to this Topic

Type: Question • Score: 0 • Views: 904 • Replies: 1

No top replies

@animalchubs,

The price of OrangeCow is fine, we won't change it. Because, because the PED is 1.2 for every 1% change in price there will be a 1.2% change in QD. So, if we increase our price by 1% we will lose 1.2% in units sold. This will lead to a reduction of Total Revenue, not an increase. Therefore, the price won't be changed.
A numerical example, using PED = 1.2. If OrangeBull is $10 and we sell 100 units, if we raise the price to 11 (10% increase) then we'll lose 12 units (12% decrease). so which is better?
$10*100 or 11*88??

0 Replies

Microeconomics HELP!!

Related Topics

Quick Links

My Account

able2know