Download the App!

Get 24/7 study help with the Numerade app for iOS and Android! Enter your email for an invite.

Get the answer to your homework problem.

Try Numerade free for 7 days

Like

Report

Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company’s product at the current price is 1.4, would you advise the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.

answer not available

No Related Courses

Chapter 5

Elasticity

How Markets Work

Markets and Welfare

02:29

Elasticity of Software ent…

01:17

If a 12 percent rise in th…

04:28

Suppose the price elastici…

02:30

Suppose the cross-price el…

01:31

If a 5 percent fall in the…

01:11

What is the price elastici…

03:11

What is the relationship b…

04:35

The demand for a product i…

02:13

Firms in a perfectly compe…

01:44

The elasticity of a good i…

03:54

In 2008, the Valve Corpora…

13:49

Demand and elasticity Base…

00:13

Suppose that at price $p=1…

01:34

15:55

00:40

What is the formula for th…

01:52

A city has built a bridge …

03:32

The equation for a demand …

00:51

As the price of a product …

06:13

Suppose the demand functio…

This is problem number six from Chapter five. It's asking. Suppose you're in charge of sales of a pharmaceutical company in your firm. Has a new drug that caused this bald man to grow hair seemed that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company's product at the current price is 1.4, would you advise the company to raise the price lower the price to keep the price the same? What if the U. S. Says he was your 0.6? What if it were one? Explain your answer. So we have three us dis it ese 1.4 0.6 one. And remember that the U. S 60 formula is percent. Triples was a change percent change quantity over percent change price. This little triangles, said Delta. It means change. Um, and essentially that means for 1.4 is that for a change of one unit in price, you see a change of 1.4 in quantity, so if you were to raise your price by $1 you would have $1.4 less of customers. Conversely, if you were to decrease your price by $1 you would see plus 1.4 customers. So what do you want to d'oh? Well, if you were to increase, you're getting $1 more worth of price. But you're losing $1.4 of customers. So you're losing $0.4. If you keep it the same, you're keeping it the same. And if you decrease price by $1 increase it by 1.4 or rather, if you decrease price by $1 you're increasing customers by one point for your gaining point for so you want to lower the price. What about four is your 40.6 wolfers your 0.6% change of one in price. You're gonna see a percent change 0.6 in quantity. In other words, if you were to increase the price by $1 you would see net 0.6 customers net net $0.6 worth of customers leave, so you're gonna see plus here a point for in revenue. If you were to decrease the price by $1 you would gain $0.6 worth of customers. So a net loss of 0.4, and if you're keeping the same, you've been net gain of zero, Of course, so in this case it's best to raise the price and leaves the customers. So you want to increase. What about one? For one, you would see a percentage of one in price, with a percent change of one in quantity. What do you want to do there? Well, it's pretty obvious if you change price by one, you lose $1 worth of customers. If you decrease price by one, you gain $1 worth of customers. It's staying the same, so there's no point in changing it. You just want to leave it.

View More Answers From This Book

Find Another Textbook

Elasticity of Software entertainment company, recently ran a holiday sale on…

If a 12 percent rise in the price of orange juice decreases the quantity of …

Suppose the price elasticity of demand for heating oil is 0.2 in the short r…

Suppose the cross-price elasticity of apples with respect to the price of or…

If a 5 percent fall in the price of chocolate sauce increases the quantity d…

What is the price elasticity of supply? Can you explain it in your own words…

What is the relationship between price elasticity and position on the demand…

The demand for a product is given by $p=90-10 q .$ Find the elasticity of de…

Firms in a perfectly competitive market are said to be price takers - that i…

The elasticity of a good is $E=0.5 .$ What is the effect on the quantity dem…

In 2008, the Valve Corporation, a software entertainment company, ran a holi…

Demand and elasticity Based on sales data over the past year, the owner of a…

Suppose that at price $p=15$ dollars the demand for a product is elastic. If…

The elasticity of a good is $E=2 .$ What is the effect on the quantity deman…

What is the price elasticity of demand? Can you explain it in your own words…

What is the formula for the cross-price elasticity of demand?

A city has built a bridge over a river and it decides to charge a toll to ev…

The equation for a demand curve is P = 2/Q. What is the elasticity of demand…

As the price of a product increases, businesses usually increase the quantit…

Suppose the demand function is of the form $q=C p^{-k},$ where $C$ and $k$ a…

01:10

What is the difference between microeconomics and macroeconomics?

01:22

Are there fixed costs in the long-run? Explain briefly.

Why would a free market never operate at a quantity greater than the equilib…

01:59

Why does a change in income cause a parallel shift in the budget constraint?…

07:30

Suppose Alphonso’s town raises the price of bus tickets from $0.50 to $1 and…

What would be the impact of imposing a price floor below the equilibrium pri…

04:59

In an analysis of the market for paint, an economist discovers the facts lis…

01:13

In choosing a production technology, how will firms react if one input becom…

03:58

From the data in Table 5.6 about supply of alarm clocks, calculate the price…

06:42

From the data in Table 5.5 about demand for smart phones, calculate the pric…