Suppose a firm sells two goods, Good A and Good B. Use the following information to answer questions that follow: Profit maximising price of Good A = R6000 MC at profit maximising level of output of Good A = R1200 MC at profit maximising level of output of Good B = R400 Total revenue of Good A = R80000 Total revenue of Good B = R68000 Rothschild index of Good B = 0.6 Price elasticity of the market demand for Good B = -1.2 2.1. Calculate the price elasticity of demand (Ed) for Good A. Ed of Good A = 2.2 Suppose that the firm noticed that when it increased the price of Good A from R4000 to R6000, the sales of Good B decreased from 8000 to
Suppose a firm sells two goods, Good A and Good B. Use the following information to answer questions that follow:
Profit maximising price of Good A = R6000
MC at profit maximising level of output of Good A = R1200
MC at profit maximising level of output of Good B = R400
Total revenue of Good A = R80000
Total revenue of Good B = R68000
Rothschild index of Good B = 0.6
Price elasticity of the market demand for Good B = -1.2
2.1. Calculate the
Ed of Good A =
2.2 Suppose that the firm noticed that when it increased the price of Good A from R4000 to R6000, the sales of Good B decreased from 8000 to 2000 units. Calculate and classify the cross-price elasticity of demand between Good A and Good B.
Ec =
Good A and Good B are classified as (substitutes/compliments)
2.3. Use the elasticity coefficient calculated above and the information provided, to calculate by how much the firm’s total combined revenue will change if it decreases the price of Good A by 16%?
Change in combined total revenue =
2.5. Suppose the firm wishes to increase its sales of Good B by 12%. Calculate by how much (in %) the firm should change the price of Good B to achieve this objective?
Percentage change in price =
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