Question

Sailright Inc. manufactures and sells sailboards. Management believes that the price elasticity of demand is -3.0. Currently, boards are priced at $500 and the quantity demanded is 10,000 per year,

a. If the price is increased to $600, how many sailboards will the company be able to sell each year?

b. How much will total revenue change as a result of the price increase?

Answer 1

Will be able to sell:

Less by 30%

$10,000\times 0.7=7,000$

Revenue

Price change

$7000\times600=4,200,000$

Before change

$10,000\times500=5,000,000$

Total revenue will decrease by $800,000