[SOLVED] Analysis of Pricing: You manage The
[SOLVED] Analysis of Pricing: You manage The Really Annoying Bicycle Messenger Company which makes deliveries for lawyers, consultants, accountants, and lobbyists in the much of Washington DC including Georgetown. The company makes deliveries of documents and small packages at a price of $10.00 each. The average number of deliveries in one month is 31,000. The owners of the Really Annoying Bicycle Co. would like to increase its sales and profits. They know that, if price is lowered, they will generate more deliveries. So they run an experiment. Price is lowered to $9.00 per delivery in May and the number of deliveries increases to 33,000.
- What is the Price Elasticity of Demand?
- Is elasticity elastic, inelastic or neither?
- What does this mean and why does it matter?
- Will Revenues increase or decrease as a result of the price cut? By How much?
- Beatrice has calculated the fixed costs for the Really Annoying are $15,000 per month and each bicycle messenger receives $5.50 per delivery. Will profits go up or down as a result of the price cut? By How much?
- Profits are revenue minus all costs.