The Relatively Little Used Blue Jean Company is trying to capitalize on the booming market for pre-worn blue jeans. It has been selling 500 pairs of blue jeans per week at $15.00 each but is considering lowering its price to $12.00. The outside consultant they hired estimated that its price elasticity of demand to be -5.00 over this price range.
a. What would be the new quantity sold if the price were lowered to $12.00?
b. What would be the new level of total revenue?
c. What additional information does Relatively Little Used need to know before it can determine whether or not a price decrease to $12.00 will increase profits?
d. Suppose that following its price reduction Relatively Little Used's nearest competitor, The Actually Worn But Not Trashed Blue Jean Company lowers its price from $12.00 to $9.00 a pair. If the cross price elasticity is .24, what will be that affect of Actually Worn's price reduction on Relatively Little Used's quantity sold?

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The Answer of The Relatively Little Used Blue Jean Company is trying to capitalize on the booming market for pre-worn blue jeans. It has been selling 500 pairs of blue jeans per week at $15.00 each but is considering lowering its price to $12.00. The outside consultant they hired estimated that its price elasticity of demand to be -5.00 over this price range.
a. What would be the new quantity sold if the price were lowered to $12.00?
b. What would be the new level of total revenue?
c. What additional information does Relatively Little Used need to know before it can determine whether or not a price decrease to $12.00 will increase profits?
d. Suppose that following its price reduction Relatively Little Used's nearest competitor, The Actually Worn But Not Trashed Blue Jean Company lowers its price from $12.00 to $9.00 a pair. If the cross price elasticity is .24, what will be that affect of Actually Worn's price reduction on Relatively Little Used's quantity sold?

The Relatively Little Used Blue Jean Company Is Trying to Capitalize