Kroger store decides to run a price promotion for Doritos. They know the elasticity of demand for Doritos is -0.95. During the price promotion, they expect to sell 25% more bags. Before the price drop, they sold 10,000 bags. a. Are Doritos an inelastic good or elastic good? Interpret the OPE given above. b. For them to be able to achieve this increased sale of bags, what would the percentage change in price be? c. If the price before the promotion was $3.49 per bag, what is the new price per bag?
Kroger store decides to run a
demand for Doritos is -0.95. During the price promotion, they expect to sell 25% more bags.
Before the price drop, they sold 10,000 bags.
a. Are Doritos an inelastic good or elastic good? Interpret the OPE given above.
b. For them to be able to achieve this increased sale of bags, what would the percentage
change in price be?
c. If the price before the promotion was $3.49 per bag, what is the new price per bag?
d. Calculate the revenue before the price drop.
e. Calculate the revenue after the price drop
f. Is the price drop a good marketing strategy, given all else is same?
Given
The elasticity of demand for Doritos =-0.95
The elasticity of demand is the percentage change in quantity demanded with respect to the percentage change in price.
Formula:
Before the price drop, the quantity sold by Kroger store was 10,000 bags.
Note:
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