Question

In the computer market Lenovo estimate that price elasticity of it's super lite computer -12.64 and the cross price elasticity of demand is 7.35 .The company now reduce price of this model by 9% of its present price level , explain

Answer 1

Answer:

Lenovo reduced the price of the model by 9% because it is what the calculations of price elasticity and cross price elasticity is telling the company to do.

A negative -12.64 price elasticity of demand means that the quantity demanded for the product falls more than the price rises. For this reason, the company found it necessary to reduce the price, in order to prevent a fall in demand.

A positive cross price elasticity of 9% means that the quantity demanded for this product will increase more than the reduction in price when compared to another product (likely a substitute, for example: a computer produced by another company). For this reason, Levono decided to lower the price, because the loss in revenue from the price reduction will be offset by the higher demand.