RCO Manufacturing is an electronics manufacturer and retailer. Its main products are ultrabook computers, PCs and calculators.  The current price of the ultrabook is £500, the PC is £800 and the calculator is £40. This year the firm sold 10,000 ultrabooks, 20,000 PCs and 1 million calculators.

In an attempt to improve revenue the managers of the firm have decided to increase all prices by 10%. Market research has suggested that the price elasticity of demand for each product is:

Ultrabook: (-) 1.5; 

PC : (-) 2.5; 

calculator:  (-) 0.6

You have been asked to evaluate the planned price increases.

• Comment on the planned price changes.
• Would a 10% price reduction have been better for some or all of the products?
• What benefit (if any) would advertising bring to the firm?