Answer to Question #297306 in Microeconomics for Rahul

Question

1.     Given the on-going pandemic, the sale of Willis cleaning products jumped 15% to Rs. 425 million and increased income by 28%. Household sales surged 7% and profits rose 65% as both prices and demand increased and a germ-averse public stocked up. Assume yourself as an ambitious manager of Willis cleaning products, who wants to use these changes in the 4th quarter to calculate the own-price elasticity of demand. You have the data on changes in price and changes in quantity sold during the quarter.

a. What would be the main challenge they would face in calculating a reliable estimate of elasticity?

a. Suppose for the 3rd quarter this challenge did not exist, rather the challenge was one of data availability. All the manager knows, a few minutes before a quickly called meeting to discuss 3rd quarter results, is that the price of a pack of 35-count Clorox Wipes increased by 12% while revenue from those wipes increased by 5%. Calculate the own-price elasticity of demand for Clorox Wipes in this quarter.

Answer 1

The greatest problem being faced by the firm is that it's offering services and services are not easily quantifiable hence making it quite hard to calculate own price elasticity.

$Own PriceElasticity=\frac{∆In Quantity}{∆InPrice}$

Therefore

$Own PriceElasticity=\frac{15}{12}=1.25$