Company E,Canada's largest eBook company,wants to increase its total revenue.One strategy is to offer a 10 percent discount on every eBook it sells.Company E knows that its customers can be divided into two distinct groups according to their likely responses to the discount.The accompanying table shows how the two groups respond to the discount.

a.Using the midpoint method, calculate the price elasticities of demand for group I and group II.
b.Explain how the discount will affect total revenue from each group.
c.Suppose Company E knows which group each customer belongs to when he logs on and can choose whether or not to offer the discount.If Company E wants to increase its total revenue, should discounts be offered to group I or to group II, to neither group, or to both groups?

Question

Company E,Canada's largest eBook company,wants to increase its total revenue.One strategy is to offer a 10 percent discount on every eBook it sells.Company E knows that its customers can be divided into two distinct groups according to their likely responses to the discount.The accompanying table shows how the two groups respond to the discount.
​  
a.Using the midpoint method, calculate the price elasticities of demand for group I and group II.
b.Explain how the discount will affect total revenue from each group.
c.Suppose Company E knows which group each customer belongs to when he logs on and can choose whether or not to offer the discount.If Company E wants to increase its total revenue, should discounts be offered to group I or to group II, to neither group, or to both groups?

Quizplus · Accepted Answer

The Answer of Company E,Canada's largest eBook company,wants to increase its total revenue.One strategy is to offer a 10 percent discount on every eBook it sells.Company E knows that its customers can be divided into two distinct groups according to their likely responses to the discount.The accompanying table shows how the two groups respond to the discount.
​  
a.Using the midpoint method, calculate the price elasticities of demand for group I and group II.
b.Explain how the discount will affect total revenue from each group.
c.Suppose Company E knows which group each customer belongs to when he logs on and can choose whether or not to offer the discount.If Company E wants to increase its total revenue, should discounts be offered to group I or to group II, to neither group, or to both groups?

Company E,Canada's Largest EBook Company,wants to Increase Its Total Revenue