Answer the following questions using the information below:
Ernie Shavers, Inc. manufactures electric shavers and is considering decreasing the price by $3 a unit for the coming year. With a $3 price decrease, the unit demand is expected to increase by 25%, and a high volume materials discount is expected to decrease the variable costs per unit by $1 per unit.

-The demand for this product is:
A)elastic
B)slightly inelastic
C)greatly inelastic
D)indeterminable

Question

Answer the following questions using the information below:
Ernie Shavers, Inc. manufactures electric shavers and is considering decreasing the price by $3 a unit for the coming year. With a $3 price decrease, the unit demand is expected to increase by 25%, and a high volume materials discount is expected to decrease the variable costs per unit by $1 per unit.
 
-The demand for this product is:
A)elastic 
B)slightly inelastic 
C)greatly inelastic 
D)indeterminable

Quizplus · Accepted Answer

The fact that a small price decrease results in a large demand increase indicates that the product has an elastic demand. Therefore, decreasing the price by $3 per unit will result in a more than proportional increase in quantity demanded, leading to an increase in total revenue. Additionally, the decrease in variable costs will further increase the profitability of the product. Therefore, decreasing the price by $3 per unit is a good choice for the company.

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