Amazon.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Amazon.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount. Group A (sales per week) Group B (sales per week) Vol. of sales before 10% discount 1.55M 1.50M Vol. of sales after 10% discount 1.65M 1.70M Using the midpoint method, calculate the price elasticities of demand for group A and group B. Explain how the discount will affect total revenue from each group. Suppose Amazon.com knows which group each customer belongs to when he logs on and can choose whether or not to offer the 10% discount. If Amazon.com wants to increase its total revenue, should discounts be offered to group A or to group B, to neither group, or to both groups?
Amazon.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Amazon.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount. Group A (sales per week) Group B (sales per week) Vol. of sales before 10% discount 1.55M 1.50M Vol. of sales after 10% discount 1.65M 1.70M Using the midpoint method, calculate the price elasticities of demand for group A and group B. Explain how the discount will affect total revenue from each group. Suppose Amazon.com knows which group each customer belongs to when he logs on and can choose whether or not to offer the 10% discount. If Amazon.com wants to increase its total revenue, should discounts be offered to group A or to group B, to neither group, or to both groups?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Amazon.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Amazon.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount.
|
|
Group A (sales per week) |
Group B (sales per week) |
|
Vol. of sales before 10% discount |
1.55M |
1.50M |
|
Vol. of sales after 10% discount |
1.65M |
1.70M |
- Using the midpoint method, calculate the
price elasticities of demand for group A and group B. - Explain how the discount will affect total revenue from each group.
- Suppose Amazon.com knows which group each customer belongs to when he logs on and can choose whether or not to offer the 10% discount. If Amazon.com wants to increase its total revenue, should discounts be offered to group A or to group B, to neither group, or to both groups?
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