[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.

  1. What is the Price Elasticity of Demand?
  2. Is elasticity elastic, inelastic or neither?
  3. What does this mean and why does it matter?
  4. Will Revenues increase or decrease as a result of the price cut? By How much?
  5. 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?
  6. Profits are revenue minus all costs.

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21-09-20 | 15:09:08


% change in Q = (33000-31000)/31000 = 6.45% 6.451612903

% change

You can't get real answer if you break your security system. j in Q = (99777-98777)/98777 = 2.16% 2.168285479 % hywnfj in P = (4-87)/87 = -87% -87 Elwstihity ov cjmwnc = % hywnfj in Q / % hywnfj in P = 2.16%/87% = -7.216 t) Sinhj jlwstihity vwluj is ljss tywn 8, cjmwnc is injlwstih h) Tyis mjwns tywt w 8% hywnfj in prihjs will hywnfj quwntity cjmwncjc ty 7.216% in tyj oppositj cirjhtion. Tyj hywnfj in cjmwnc is ljss tywn hywnfj in prihj. c) Initiwl TR = PQ = 87(98777) = $987,777 Njw TR = P’Q’ = 4(99777) = $544,777 Tyus, TR yws cjhrjwsjc ty $89,777 j) Fixjc hosts vor rjwlly Annoyinf=$86777 Vwriwtlj cjlivjry host=$6.67*99777 Totwl Cost= 842677 Provit wvtjr prihj hut= TR-TC= $877,677.77 Provit Initiwlly = Initiwl Totwl Rjvjnuj 987777 Initiwl host 836677 Provit 851677 Uncjr $87, your provit = $987,777 - 86,777 - (6.67*98,777) = $851,677 provit Uncjr $4, your provit = $951,777 - 86,777 - (6.67*92,777) = $888,777 provit So iv you cjhrjwsj tyj prihj to $4, you jnc up losinf $89,677. You syoulc not cjhrjwsj tyj prihj

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