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Price Elasticity

High-Time, Inc. manufactures medium proceed plastic wrist watches. High-time is considering lowering the price of its watches from the current $14 per unit to $10 per unit. High-Time currently sells 18,500 units per month. The firm's marketing department estimates the price elasticity of demand to be -2.5 over this price range.

a. If High-Time lowers the price, will the total revenue increase, decrease, or remain unchanged? Why?

b. If High-Time lowers the price, what will be the new evel of quantity demanded? Of the new revenue?

Solution Preview

a) as the price elasticity is in the elastic range (-2.5), by decreasing the price the the total revenue will increase. The decrease in price would ...

Solution Summary

Price Elasticity is examined in this case.