Assignment 3.docx - If the price of shoes increases by 10 its demand will drop by 30 1 Calculate the price elasticity of demand covariance for this

Assignment 3.docx - If the price of shoes increases by 10...

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If the price of shoes increases by 10%, its demand will drop by 30%. 1- Calculate the price elasticity of demand covariance for this product at this point. The price elasticity of demand = (% change in quantity demanded) / (% change in price) = (-30) / 10 = (-3) So, absolute value of price elasticity of demand is (3) 2- Is it elastic or inelastic? Because the price elasticity of demand for shoes (3) is greater than 1, so the price elasticity of demand for shoes is elastic. 3- If the initial price of the product is $100 and the sales in 10,000 units a day, then how this change in price will affect the revenue? If the initial price of the product is $100 and the sales in 10,000 units a day, Total Revenue = 100 * 10,000 = 1,000,000 When the price of shoes increases by 10%, its demand will drop by 30%, so the price = $110, and the sales = 7,000 units a day, then Total Revenue = 110 * 7,000 = 770,000 So, when the price elasticity of demand for shoes is elastic, there is decline in total revenue (TR) with increase in price.
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  • Fall '19
  • Supply And Demand, price of shoes increases, price elasticity of demand covariance

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