Buy & Large typically sells 800,000 packs of batteries per month. Two months ago, it raised
the price of a pack from $5 to $6. Last month it sold 600,000. Then it declared bankruptcy.
a. What was B&L’s monthly revenue prior to the price rise? After? (11 pts)
b. What is the price elasticity of demand for B&L’s batteries? (20 pts)
c. Is the demand curve for batteries elastic or inelastic between $5 & $6, and why? (13
pts) How does bankruptcy affect the price elasticity of demand?
d. Suppose that B&L finds a way to make $1 million of profit on batteries per month.
How will the market for batteries react to this, and why? (15 pts)
e. When this happens, how does that affect the price elasticity of demand that B&L
faces for its batteries? (14 pts) Will this be enough to save it from bankruptcy?
f. How much profit does B&L make in equilibrium? Why? (14 pts)
g. Is B&L able to continue paying its workers at this point? Why or why not? (13 pts)
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