Question

Mr. Porter sells 10 bottles of champagne per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively, an increase of _____ and a decrease of _____.

Answer 1

Answer:

$45; $50

Explanation:

Given that,

Quantity sold (at price = $50 per bottle) = 10 bottles of champagne

Quantity sold (at price = $45 per bottle) = 11 bottles of champagne

Therefore,

Quantity effect (keeping the price unchanged):

= (11 - 10) × $45

= $45  

Price effect (keeping the quantity unchanged):

= ($45 - $50) × 10

= - $50

Hence, total revenue experiences an increase of $45 and a decrease of $50.