Francine is a a dental floss tycoon living in Montana. She faces the following demand curve for her product: Price ( in $/unit) Quantity demanded 2.50 1000 2.20 2000 1.90 3000 1.60 4000 1.30 5000 1.00 6000 .70 7000 .40 8000 Francine has been told by her brother, who is currently taking a marketing class, that if she lowers her price by one increment(for example; changing price from .70 to .40, or raising price from .40 to .70) she will capture market share and increase total revenue. All of her advisors within the company have assured Francine that her brother's advice may be correct, BUT the above demand curve will not change. Assume that Francine knows the above demand curve will not change and is also considering her brother's advice. The prices can only change in the increments specified. The current price is $1.30. 1. If Francine is seeking to maximize total revenue, should she follow her brother's advice? Why? (Use midpoint formula of elasticity) 2. Suppose that the current price is now $1.90, and Francine’s brothers advice is the only change under consideration, does this change your answer to #1? What, if anything, is different?
Francine is a a dental floss tycoon living in Montana. She faces the following demand curve for her product:
Price ( in $/unit) Quantity demanded
2.50 1000
2.20 2000
1.90 3000
1.60 4000
1.30 5000
1.00 6000
.70 7000
.40 8000
Francine has been told by her brother, who is currently taking a marketing class, that if she lowers her price by one increment(for example; changing price from .70 to .40, or raising price from .40 to .70) she will capture market share and increase total revenue. All of her advisors within the company have assured Francine that her brother's advice may be correct, BUT the above demand curve will not change. Assume that Francine knows the above demand curve will not change and is also considering her brother's advice. The prices can only change in the increments specified. The current price is $1.30.
1. If Francine is seeking to maximize total revenue, should she follow her brother's advice? Why? (Use midpoint formula of elasticity)
2. Suppose that the current price is now $1.90, and Francine’s brothers advice is the only change under consideration, does this change your answer to #1? What, if anything, is different?
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