Amazon.com is trying to increase its total revenue. It explores a 10% discount on its products. Based
Question:
Amazon.com is trying to increase its total revenue. It explores a 10% discount on its products. Based on internal research, amazon knows that its customers can be divided into two distinct groups (Prime and General). The following table shows how the two groups respond to the discount (amounts are sales/week). Assume that all products sold cost the same (production and price).
| General Customers | Amazon Prime Customers |
|
Volume of sales before the 10% discount | 1.50 million | 1.55 million |
|
Volume of sales after the 10% discount | 1.70 million | 1.65 million |
|
|
|
|
|
a) Calculate the price elasticity of demand for General Customers and for Prime Customers.
b) Explain how the discount will affect total revenue from each group.
c) In order to maximize revenue, should discounts be offered to General Customers only, to Prime only, to neither, or to both? Why?
Automation Production Systems and Computer Integrated Manufacturing
ISBN: 978-0132393218
3rd edition
Authors: Mikell P.Groover