3.2 ariesanceped-ricalUSE YOUR SMARTPHONE FORReviews Videos FeaturesSpecs SupportSCANStandard data rates may apply.3.2. MP34U. Music Ventures sells a very popular MP3 player, the MP34u. The firmcurrently sells one million units for a price of $100 each. Marginal cost is estimated tobe constant at $40, whereas average cost (at the output level of one million units) is $90.The firm estimates that its demand elasticity (at the current price level) is approximately-2. Should the firm raise price, lower price, or leave price unchanged? Explain.at $72 andinteCO

Answered: 3.2. MP34U. Music Ventures sells a very…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

3.2

aries
ance
ped-
rical
USE YOUR SMARTPHONE FOR
Reviews Videos Features
Specs Support
SCAN
Standard data rates may apply.
3.2. MP34U. Music Ventures sells a very popular MP3 player, the MP34u. The firm
currently sells one million units for a price of $100 each. Marginal cost is estimated to
be constant at $40, whereas average cost (at the output level of one million units) is $90.
The firm estimates that its demand elasticity (at the current price level) is approximately
-2. Should the firm raise price, lower price, or leave price unchanged? Explain.
at $72 and
inte
CO

Expert Solution

Step 1

Introduction

Demand elasticity is a measure of how much the total demand for a good or service responds to a change in its price. It is used to measure the responsiveness of the total change in demand for a good or service relative to its price. Generally, the more elastic the demand, the greater the responsiveness.

Given

$\begin{array}{rcl} MC & = & 40 (Constant) \\ e & = & - 2 \end{array}$

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