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Revenue at a major smartphone manufacturer was $1.5 billion for the nine months ending March 2,...

Revenue at a major smartphone manufacturer was $1.5 billion for the nine months ending March 2, up 98 percent over revenues for the same period last year. Management attributes the increase in revenues to a 124 percent increase in shipments, despite a 17 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?

  • Yes. Own price elasticity is -0.14, which means demand is inelastic and a decrease in price will decrease revenues.

  • No. Own price elasticity is -0.14, which means demand is elastic and a decrease in price will raise revenues.

  • Yes. Own price elasticity is -7.29, which means demand is elastic and a decrease in price will decrease revenues.

  • No. Own price elasticity is -7.29, which means demand is elastic and a decrease in price will raise revenues.

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Answer #1

Price elasticity of demand = percentage change in demand/percentage change in price

=124/-17

=-7.29

No. Own price elasticity is -7.29, which means demand is elastic and a decrease in price will raise revenues.

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