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Analyzing impact of price changes on sales

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The ABC company manufacture AM/FM clock radios and sell an average 3000 units monthly at $25 each for retail store. it closest competitor produce a similar type of radio that sell for $ 28.

a. If the demand for ABC product has an elasticity coefficient of -3, how many it will sell per month if the price is lowered to 22?

b. The competitor decreases its price to $ 24. if the cross elasticity between the two radios is 0.3 what will ABC's monthly sales be?

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Solution Summary

Solution describes the methodology to study the impact of price changes on sales with the use of elasticity concepts.

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a. If the demand for ABC product has an elasticity coefficient of -3, how many it will sell per month if the price is lowered to 22?

% change in price=(22-25)/25=-12.00%
% change in demand=% change in price*price ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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