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Demand Theory - Hanover Manufacturing Company

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The Hanover Manufacturing Company believes that the demand curve for the product is: P= 5-Q, where P is the price of its product (in dollars) and Q is the number of millions of units of its product sold per day. It is currently charging a price of $1 per unit for its product.

A. Evaluate the wisdom of the firm's pricing policy.
B. A marketing specialist says that the price elasticity of demand for the firm's product is -1.0. Is this correct?

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A. Evaluate the wisdom of the firm's pricing policy.

Total Revenue = Price x Quantity

= (5-Q)*Q = 5Q - Q^2

D(revenue)/dQ ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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