Answer to Question #189115 in Microeconomics for Zoe sackitey

Question

4. DBS Farms is a producer and retailer of farm products. DBS main products are Mangoes, Pawpaw and Pineapples. The current price of the Mangoes per Kilogram is GHS 50, the Pawpaw/Kg is GHS 80 and the Pineapple is GHS 40. This year the DBS Farms sold 10,000 kgs of Mangoes, 20,000 kgs of Pawpaw and 1 million kgs of Pineapples. In an attempt to improve revenue, the managers of the firm have decided to increase all prices by 10%. Market research has suggested that the price elasticity of demand for each product is: Mangoes: - 1.5; Pawpaw: -2.5; Pineapples: - 0.6. You have been asked to evaluate the planned price increases.

a. Comment on the planned price changes.

b. Would a 10% price reduction have been better for some or all of the products?

Answer 1

Rising prices for mango and papaya resulted in a loss in overall profit due to a decrease in the number of products sold. For pineapple, this price increase was not significant.

If the price of papaya is lowered, it will lead to an increase in the profit from the sale of papaya. For mango, this price reduction is less noticeable at the bargain, and for pineapple, there is no need to reduce the price.