PrintIt sells inkjet printers for £27.50 each. Another company in the industry has just reduced the price of its product from £35 to £30. As a result, PrintIt’s sales declined from 9,500 to 7,500 printers per month.

A) Calculate the cross-price elasticity of demand between the two products using the midpoint (or arc elasticity) method. Comment on the result.

B) Recently, the supply of cartridges used in PrintIt’s printers has declined and cartridge prices have increased significantly. Explain, in words and in a graph, how this change in the supply of cartridges might affect the demand for printers.

C) Just over a decade ago, people’s income increased from £20,000 to £23,000 in a brief period. However, PrintIt saw its sales drop to 6,000 from a peak of 12,000 in the same period. Calculate the income elasticity of demand for printers using the arc method. What was the effect of income change on printer demand?

D) PrintIt is considering raising its price to $33. Compatible inkjet printer cartridge prices are $28 on average and have not changed since last year. The price elasticity of demand for PrintIt’s printers is -3.89. Should PrintIt raise the price of its ink jet printer? Explain.

 

 

Answer rating: 100% (QA)

New Product Price P2 30 Midpoint Price Pm P1 P2 2 35 30 2 3250 Original Quantity Q1 9500 New Quantity Q2 7500 Midpoint Quantity Qm Q1 Q2 2 9500 7500 2 ... View the full answer