The table below shows the hypothetical prices and quantities demanded of a software product. Assume that the
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Question:
The table below shows the hypothetical prices and quantities demanded of a software product. Assume that the fixed cost of setting up the production of software is $200 and the marginal cost is $5.
- Fill out the table by calculating the revenue, the marginal revenue, the marginal cost, and the profit.
- Give a general definition of price elasticity of demand. Explain the factors that make the demand of the product more elastic.
- Calculate the own price elasticity of increasing the price from $0 to $5, from $5 to $10, etc., from $35 to $40. In which price region is the demand for the product elastic and in which region is it inelastic?
- Conduct a stay even analysis by calculating the critical loss from increasing the price from $30 to $35. How much business can the software company afford to lose by increasing the price in order to maintain its profit?
Price ($) | Quantity sold | Revenue | MR | MC | Profit | Elasticity |
40 | 0 | |||||
35 | 10 | |||||
30 | 20 | |||||
25 | 30 | |||||
20 | 40 | |||||
15 | 50 | |||||
10 | 60 | |||||
5 | 70 | |||||
0 | 80 |
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