An online retailer of knee braces sells 22000 per month at a price of $60. They...
Homework Answers
A. Original price= $60
Original quantity= 22000
New price = $75
New Quantity= 16500
Elasticity of demand= (16500-22000)/(16500+22000)/2)÷(75-60)/(75+60)/2
=(--5500/19250)÷(15/67.5)
=-1.28
Demand is elastic.
b. Total revenue=Price* Quantity
Initial total revenue= 60*22000= $1320000
New total revenue= 75*16500=$1237500
As a result of the change, Total revenue fall.
c. Firm should reverse the price increase.
When demand is elastic, reducing the price leads to rise in total revenue. As the rise in quantity demanded is greater than the fall in price level.
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