Question: please work this on an excel spreadsheet thanks hanna corporation...
Please work this on an excel spreadsheet Thanks!
Hanna Corporation markets a compact microwave oven. In 2010 they sold 23,000 units at $375 each. Per capita disposable income in 2010 was $6,750. Hanna economists have determined that the arc price elasticity for this microwave oven is −1.2. Use arc price elasticity to answer questions below:
- In 2011 Hanna is planning to lower the price of the microwave oven to $325. Will a price decrease in 2011 help company revenue growth? Why? (Hints: How would you interpret price elasticity −1.2? Will total revenue in 2011 be higher than 2010? )
- In 2011 Hanna is planning to lower the price of the microwave oven to $325. What sales volume for 2011 will be assuming that all other things remain equal?
- However, in checking with government economists, Hanna finds that per capita disposable income is expected to rise to $7,000 in 2011. In the past the company has observed an arc income elasticity of +2.5 for microwave ovens. Given that the price is reduces to $325 and that per capita disposable income increases to $7,000, what sales volume for 2011 will be? Assume that the price and income effects are independent and additive. (Hints: Read " The Combined Effect of Demand Elasticities " in the textbook )