The relation between price elasticity of demand and increasing revenues of smart phones.

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Chapter 3, Problem 11PAA

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The relation between price elasticity of demand and increasing revenues of smart phones.

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You are a manager in charge of monitoring cash flow at a major publisher. Paper books comprise 70 percent of your revenues, which grow about 2 percent annually. You recently received a preliminary report that suggests the growth rate in ebook reading has leveled off, and that the cross-price elasticity of demand between paper books and ebooks is -0.6. In 2019, your company earned about $300 million from sales of ebooks and about $700 million from sales of paper books. If your data analytics team estimates the own price elasticity of demand for paper books is -2.5, how will a 2 percent decrease in the price of paper books affect your overall revenues from both paper books and ebooks sales? Instructions: Enter your response rounded to one decimal place. Your overall revenues will change by $ million.

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Revenue at a major smartphone manufacturer was $1.4 billion for the nine months ending March 2, up 97 percent over revenues for the same period last year. Management attributes the increase in revenues to a 137 percent increase in shipments, despite a 17 percent drop in the average blended selling price of its line of phones.Given this information, is it surprising that the company’s revenue increased when it decreased the average selling price of its phones? a. Yes. Own price elasticity is −0.12, which means demand is inelastic and a decrease in price will decrease revenues. b. Yes. Own price elasticity is −8.06, which means demand is elastic and a decrease in price will decrease revenues. c. No. Own price elasticity is −8.06, which means demand is elastic and a decrease in price will raise revenues. d. No. Own price elasticity is −0.12, which means demand is elastic and a decrease in price will raise revenues.