Elasticity and Demand
Picard is currently charging $50 for a Memory chip and is considering reducing price to $45.
a) Elasticity is when variable changes as a result of change of another. Mr. Picard will experience a price elasticity of demand because there is a change in price of the memory chip. The demand will raise from 275 to 300. It means that there will be a rise in demand as a result of a decrease in price.
b) The effect of change to the revenue. The revenue will increase. Mr. Picard will take the change in the quantity demanded, divided by the previous quantity demanded. Then take the change in price, divided by the original price. The divide first results with the second results.
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For a firm to maximize its profits, it should try to equalize between marginal costs and marginal revenue. The level of profit maximization is 4 because, it’s at 4 that the marginal revenue almost equals the marginal costs.
Fixed costs of the firm are total revenue minus the total costs and the profits.
Hoch, S. J., Kim, B. D., Montgomery, A. L., & Rossi, P. E. (1995). Determinants of store-level price elasticity. Journal of marketing Research, 17-29.