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Revenue at a major smartphone manufacturer was $2.2 billion for the nine months ending March 2,...

Revenue at a major smartphone manufacturer was $2.2 billion for the nine months ending March 2, up 90 percent over revenues for the same period last year. Management attributes the increase in revenues to a 119 percent increase in shipments, despite a 32 percent drop in the average blended selling price of its line of phones.

Given this information, is it surprising that the company’s revenue increased when it decreased the average selling price of its phones?

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Answer #1

The result would not be surprising for the company. The reason is that the own price elasticity of demand for major manufacturer of cellular telephone is -3.72 (=119 / (-32)). Because it is greater than one in absolute value thus demand is elastic. As demand is elastic thus a fall in price will increase the revenues; thus it will not be surprising that the revenue of a company increased when it reduced the average selling price of its cellular telephone

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