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Marysya12 [62]
3 years ago
7

Suppose that ABC Beer Brewer faces a linear demand curve and that the current price for its beer is set at a point where the pri

ce elasticity is 1.60. If ABC Beer Brewer increases the product price:
A) the demand becomes more elastic and total revenue increases.
B) the demand becomes less elastic and total revenue increases.
C) the demand becomes less elastic and total revenue decreases.
D) the demand becomes more elastic and total revenue decreases.
E) the demand becomes more elastic and total revenue remains the same.
Business
1 answer:
cupoosta [38]3 years ago
3 0

Answer: D) the demand becomes more elastic and total revenue decreases.

Explanation:

When elasticity is greater than 1, it means that a change in price will lead to an even greater change in quantity demanded which means that demand becomes more elastic. An elasticity of 1.60 can be taken to mean that when the price increased by $1, the quantity demanded for the beer reduced by 160%.

This would decrease total revenue because the decrease in quantity demanded will be too much for the price increase to help in revenue being recouped. This is the general case when price elasticity is greater than 1.

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Answer:

4,513 approx.

Explanation:

The computation of the minimum number of jars of silver polish is shown below:-

Sales revenue for one jar of silver polish    $5.60

Sales revenue for 1/4 pound of Grit 337     0.85

($3.40 ×  1 ÷ 4)

Incremental revenue from

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($5.60 - 0.85)

Incremental costs of further processing:

Processing costs                      $2.40

Selling costs                              $0.40          $2.80

Incremental contribution

margin from further

processing into silver polish

per jar                                                            $1.95

($4.75 - $2.80)

Point of indifference denotes the point where all options are equally profitable. But after that we will see that more processing is profitable. This is due to the fixed costs involved in further production.

Thus Minimum number of jars needed to produce to justify the further processing = Avoidable Fixed cost ÷ Incremental contribution

= $8,800 ÷ $1.95

= 4,513 approx.

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