Question

Lego is a popular children's toy which consists of colourful connecting plastic bricks which can be used to construct vehicles and buildings. There are several competitors to Lego: Lego-clones including Mega Bloks, K'NEX and Best-Lock. However, The Lego Group has the exclusive rights to produce certain themed Lego sets including Harry Potter, The Hobbit and Star Wars. Answer the following questions: a. Suppose The Lego group knows that at the current price for their Star Wars X Wing Star fighter Lego set demand is inelastic. A 1% increase in the price would lead to a less than % decrease in sets demanded, ceteris paribus. Answer as a whole number (with no decimal places) b. Suppose The Lego Group currently has a box of Harry Potter themed Lego for a recommended retail price of $79.99 and they sell 400,000 units per year, worldwide. Economic modelling has shown that if they increased the price to 583.99 they would sell 399,000 units per year, worldwide. What is the price elasticity of demand using the mid-point formula? places. Answer to two decimal c. Given what you have found in part b, if The Lego Group aims to maximise revenue, they should the price. Type I for Increase, D for Decrease or N for Not change.