Deluxe Carpeting a leading manugacturer of carpeting sold 28 million square yard

Question

Deluxe Carpeting a leading manugacturer of carpeting sold 28 million square yards of carpeting at a price of $16 per yard.  This year, GNP per captia is expected to fall from $19,000 to $17,000 as the nation enters a recession.  Deluxe expects that current-year sales to fall to 20 million square yards.  

a. Calculate the implied arc income elasticity of demand.

?I =

b. Given a price elasticity coefficient of -2.5, to what level would price have to be lowered to maintain there sales at a level of 28 million square yards.

New Price =

Explanation / Answer

E= delta Q / delta I X I2 +I1 / (Q1 + Q2)=(20-28) /(17000-19000) x (17000+19000) / (20-28) =3 ====================Without a price decrease, sales this year would total 20 million units. Therefore, it is appropriate to estimate the arc price elasticity from a (before-price-decrease) base of 20 million units:=============Lower. Because carpet demand is in the elastic range, EP = -2.5, an increase (decrease) in price will result in lower (higher) total revenues

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.