The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per...
The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decayfighter, reduced the price of its electric toothbrush from $35 to $15. As a result, Stopdecay's sales declined by 1,500 units per month.
What is the arc cross elasticity of demand between Stopdecay's toothbrush and Decayfighter's toothbrush?
3.85
0.26
–3.85
–0.26
Points:
The value of the arc cross elasticity between these products suggests that they are selector 1
- complementary
- substitutes
.
Points:
Close Explanation
Explanation:
If Stopdecay knows that the arc price elasticity of demand for its toothbrush is −1.5, what price would Stopdecay have to charge to sell the same number of units as it did before the Decayfighter price cut? Assume that Decayfighter holds the price of its toothbrush constant at $30.
$28.70
$30.48
$21.77
$15.00
Points:
Close Explanation
Explanation:
It Stopdecay does not change its price, the average monthly total revenue would be selector 1
- $195,000
- $240,000
- $162,500
- $200,000
. On the other hand, if it changes the price to sell the same number of units as it did before, the average monthly total revenue would be selector 2
- $243,840
- $120,000
- $174,160
- $229,600
.
Points:
Should Stopdecay change the price of its electric toothbrush?
Yes; as calculated, changing the price increases the total revenue.
No; as calculated, changing the price lowers the total revenue.
It is unclear based on the information given.
Homework Answers
Q.1.
In our example:
Positive cross price elasticity of demand means that the goods are substitutes.
This means that as price of the susbtitute good is decreased by rival firm, people will be to substituting the cheaper alternative to the original product in question and hence original product's sales fall.
Add Answer to:
The Stopdecay Company sells an electric toothbrush for $25. Its
sales have averaged 8,000 units per...
The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per...
The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decayfighter, reduced the price of its electric toothbrush from $35 to $25. As a result, Stopdecay's sales declined by 1,500 units per month. What is the arc cross elasticity of demand between Stopdecay's toothbrush and Decayfighter's toothbrush? O 1.61 O 0.62 o O -1.61 o o -0.62 The value of the arc cross elasticity between...
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Aztec Company sells its product for $150 per unit. Its actual
and budgeted sales follow.
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April (actual)
4,500
$
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May (actual)
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390,000
June (budgeted)
6,000
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July (budgeted)
5,000
899,000
August (budgeted)
4,200
630,000
All sales are on credit. Recent experience shows that 30% of credit
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the sale, 26% in the second month after the sale, and 4% proves to
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and budgeted sales follow.
Units
Dollars
April (actual)
4,500
$
675,000
May (actual)
2,600
390,000
June (budgeted)
6,000
900,000
July (budgeted)
5,000
899,000
August (budgeted)
4,200
630,000
All sales are on credit. Recent experience shows that 30% of credit
sales is collected in the month of the sale, 40% in the month after
the sale, 26% in the second month after the sale, and 4% proves to
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