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Economics, Microeconomics
Year 4

Income Elasticity


During the past year,MP sold 150,000pairs of brake shoes at an average wholesale price of $13per pair. This year, GNP per capita is expected to fall from $21,000 to 19000 as nation enters a steep recession. Without any price change, MP expects current year sales to fall to 100,000.
a. calculate the implied arc income elasticity of demand.
b.given the projected fall in income, sales mgr thinks current volume of 150,000 units can only be maintained with a price cut of $1 per unit. on this basis,calculate the implied arc price elasticity of demand.
c.holding all else equal, would a further increase in price result in higher or lower total revenue?

By OTA:  Jiong Tu, PhD (IP)

OTA Rating:  4.8/5

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best choice: greatest present value ... - show all work 4. You have just won the lottery and you have three choices to choose from as to how you will receive your winnings. Choice I: You would receive a lump sum payment of $75,000 today. Choice II: You would receive $10,000 at the end of each of the next 8 years Choice III: You would receive $10,000 at the beginning of each of the next 8 ...

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