The total revenue increases

Running head: Microeconomics
Microeconomics
Name of the Student
Name of the University
Student ID

Microeconomics1
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................3
Answer 3..........................................................................................................................................4
Answer 4..........................................................................................................................................5
Answer 5..........................................................................................................................................8
Answer 6..........................................................................................................................................9
Answer 7........................................................................................................................................10
References......................................................................................................................................11

Microeconomics2
Answer 1
(i)
Cross price elasticity of Stop Deca y' s=
QSD 2−QSD 1
QSD 2 +QSD 1
2
PDF 2−PDF 1
PDF 2 + PDF 1
2
¿ , Cross price elasticity of Stop Deca y' s=
1500
14500
2
5
65
2
¿ , Cross price elasticity of Stop Deca y' s=−1.35
The cross price elasticity of the two products found to be -1.35 highly elastic and this indicates
they are substitute products.
(ii)
Price elasticity of demand=
QSD 2−QSD 1
QSD 2 +QSD 1
2
PSD 2−PSD 1
PSD 2 + PSD 1
2
¿ ,−1.5=
8000−6500
8000+6500
2
PSD 2−25
PSD 2+ 25
2

Microeconomics3
¿ ,−1.5=
1500
14500
PSD 2−25
PSD 2 +25
¿ , PSD 2=21.77
Stop Decay has to reduce its price to $21.77.
(iii)
Revenue before price change=25 ×6500
¿ , Revenue before price change=$ 162500
Revenue after price change=21.77 ×8000
¿ , Revenue after price change=$ 174160
(iv) In part (iii) after reduction in price of electric toothbrush of Stop Decay the revenue has
increased and thus the result is desirable. The factors that are needed to consider are level of
profit margin, the portion of marginal cost curve where the firm is operation that means if firm is
operating at MC=MR or not and the firm should earn at least zero economic profit.