Answer to Question #188146 in Microeconomics for jermaine015

Question

Suppose you are the producer of cabbages,onions and potatoes and you are in a position to decide at which price you'll offer these products for sale. What will be your pricing strategy for each of these products in order to increase the total revenue?In your analysis you found that the price elasticity of demand for cabbage is 0.6,for potatoes is 1.0 and for onions it is 1.4.Explain your decision in each case.

Answer 1

i) Cabbages- mean- inelastic demand

I will set high price for the cabbages because if the price is increased, the quantity demanded will not decrease.

ii) Potatoes - mean- unitary demand

I will set medium price for the potatoes because if I increase the price by certain amount the quantity demanded will also decrease by that amount.

iii) Onions - mean- elastic demand

I will set low price for the onions because the demand is very sensitive to price