Answer to Question #67682 in Economics of Enterprise for Brenda

Question

Managing director of a fim that suplies three goods: laptops, USB drives and External hard drives. The price elasticity of the demand for laptops is 2.0;for USB drives it is 1,00; and for External hard drives it is 0.53. The firm is experiencing cash flow problems and you have to increase total revenue. what would be pricing strategy for each product? Motivate yor decisions

Answer 1

The price elasticity of the demand for laptops is 2.0; for USB drives it is 1.00; and for external hard drives it is 0.53.
If the firm is experiencing serious cash flow problems and you have to increase total revenue as soon as possible, then our pricing strategy will be built on assumption, that we should increase price for products with inelastic demand and decrease price for products with elastic demand. So, we should increase price for external hard drives and decrease price for laptops to increase total revenue, but the change in price for USB drives will not cause any change in total revenue.