Elasticity
Elasticity Worksheet: The Case of the Missing Money
Mickey operates a small business that produces 3 products. We will call these products A, B, and C. Mickey's costs of production have recently increased by approximately $5,000. Since his total revenue (his sales) was just a little over $100,000, Mickey figured he would pass on the increased costs of production to his customers by raising his prices 5%. But, after raising the price of all three products by 5%, Mickey found himself with LESS money than he had before. He has asked you to find out what happened and has supplied the following data. Complete the blank spaces and answer the questions.
Before Mickey Raises Price After Mickey Raises Price % chg using midpoint formula Price Elasticity
Of Demand
Units Price Total Revenue Units Price Total Revenue % chg Q % chg P
Product A 531 $78.00 469 $82.00 12.5% 5.0%
Product B 1,025 $39.00 975 $41.00 5.0% 5.0%
Product C 1,010 $19.50 990 $20.50 2.0% 5.0%
Total All Products
Question 1
Marks: 1
What is the price elasticity of demand for Product A? (enter your answer with one decimal place - ignore any minus signs)
Answer:
Question 2
Marks: 1
What is the price elasticity of demand for Product B? (enter your answer with one decimal place - ignore any minus signs)
Answer:
Question 3
Marks: 1
What is the price elasticity of demand for Product C?(enter your answer with one decimal place - ignore any minus signs)
Answer:
Question 4
Marks: 1
Which product (A, B, or C) has elastic demand?
Choose one answer.
a. A
b. B
c. C
Question 5
Marks: 1
Which product (A, B, or C) has inelastic demand?
Choose one answer.
a. A
b. B
c. C
Question 6
Marks: 1
Which product (A, B, or C) has unit elastic demand?
Choose one answer.
a. A
b. B
c. C
Question 7
Marks: 1
Which product (A, B, or C) generated less revenue after the price was increased?
Choose one answer.
a. A
b. B
c. C
Question 8
Marks: 1
Which product generated the same revenue even though it's price was increased?
Choose one answer.
a. A
b. B
c. C
Question 9
Marks: 1
The purchasers of product B have an income elasticity of demand of 1.2. If their income increases by 10%, then by how much should Mickey's sales from product B increase? (enter as a decimal not as a percent- for example 95% should be entered as 0.95)
Answer:
Question 10
Marks: 1
Another store sells a product (let's call it product D) to most of the same people who buy Product C from Mickey. Product C has a cross-price elasticity of demand with Product D of 0.9. Mickey understands that the price of Product D will be increased soon. Will this help Mickey generate more revenue?
Choose one answer.
a. Yes, since D and C are obviously complements.
b. No, since D and C are obviously complements.
c. Of course not. Product D is sold by a different store and they are unlikely to share the increased revenue with Mickey.
d. Yes, since D and C are obviously substitutes.
e. No, since D and C are obviously substitutes.
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