A small company that sells films and videos wants to increase its sales revenue. One option is to offer discount of 10% to each film/video sold. The company knows that its products can be divided into sub-divisions based on the production and ownership of the content in the film/video. The table below shows the responses of each 'content' to the discount:

Local content on Sales before 10% discount: 1.55 million;

Local content on sales after 10% discount: 1.65 million

Foreign content on sales before 10% discount: 1.50 million

Foreign content on sales after 10% discount: 1.70 million

Question 1

a] Using the midpoint formula, calculate the price elasticity of demand for each content

b] Based on the revenue test to price elasticity of demand, which content(s) should be accorded the discount? explain

c] The government wishes to increase its revenues and plans to impose a tax on the film/video retail industry, but has no intention of driving retailers out of business. Which of the two contents should be taxed or not taxed? substantiate your answer.

d] What do you think would happen to the price elasticity of demand for local content in the following cases:

1) Foreign content is banned in the country

2) Due to aggressive advertising, foreign live styles are thought to be attractive and a desire to associate with foreign 'things' increases.

3) A country's wealth increases and the consumption of entertainment, including films/videos, becomes insignificant to a consumer's budget.

Answer rating: 100% (QA)

a The price elasticity of demand PED is calculated using the midpoint formula PED Q2 Q1 Q1 Q2 2 P2 P... View the full answer