A firm manufactures high priced gold plated wrist watches. The firm is considering lowering the price of its watches from the current $1000 per unit to $700 per unit. The firm currently sells 6000 units per year. The firm's staff economist believes the price elasticity of demand to be -3 over this price range. If the firm lowers the price, will the total revenue increase, decrease or remain unchanged? Why?If it lowers the price, what will be the new level of quantity demanded? Of new total revenue?Would you suggest the firm to offer further price discount? Why? And Why not?

The concept of price elasticity in demand tells us how much a person will change his/her demand for…

Answered: A firm manufactures high priced gold…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A firm manufactures high priced gold plated wrist watches. The firm is considering lowering the price of its watches from the current $1000 per unit to $700 per unit. The firm currently sells 6000 units per year. The firm's staff economist believes the price elasticity of demand to be -3 over this price range.

If the firm lowers the price, will the total revenue increase, decrease or remain unchanged? Why?
If it lowers the price, what will be the new level of quantity demanded? Of new total revenue?
Would you suggest the firm to offer further price discount? Why? And Why not?

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