Assume the demand curves implied by the data in Exhibit 1 are linear.How many units of PS3 and Xbox 360 will Sony and Microsoft sell, respectively, if they both charged $399?How many units will each firm sell if they both charged $299?Use your answers to calculate the arc price elasticities of demand for Sony and Microsoft if they both initially charged $399 then both dropped their price to $299.Based on your arc price elasticity of demand calculations, would you recommend Sony to increase or decrease its price for PS3 if Sony solely wanted to increase total revenue?Would you make the same price recommendation to Microsoft if it was solely interested in increasing total revenue?

Exhibit 1 Prices and Projected Annual Sales Volumes for Sony PlayStation 3 and Microsoft Xbox 360 Elite PS3 Price Xbox 360 Price PS3 Xbox 360 Projected Number of Projected Number of Units Sold (millions) Units Sold (millions) $299 $299 11.25 11.5 $299 $399 11.75 7.0 $399 $299 8.25 12.5 $399 $399 8.75 8.0Exhibit 2 Sony PlayStation 3 Production Costs per Unit (US dollars) Units Produced 8.25 8.75 9.25 9.75 10.25 10.75 11.25 11.75 12.25 12.75 (in millions) Production Labor Materials & Parts 161 155 145 143 141 140 140 141 142 Overhead 66.67 62.86 59.46 56.41 53.66 51.16 48.89 46.81 44.90 43.14 Distribution 9 Per Unit Total Cost $372.67 5343.86 5321.46 5296.41 5281.66 5270.16 5260.89 5244.81 $241.90 5243.14 Exhibit 3 Microsoft Xbox 360 Elite Production Costs per Unit (US dollars) Units Produced 7.00 7.50 8.00 8.50 9.00 9.50 10.00 10.50 11.00 11.50 12.00 12.50 (in millions Production Labor 69 Materials & Parts 180 172 167 161 156 153 149 147 146 145 144 144 Overhead 64.29 60.00 56.25 52.94 50.00 47.37 45.00 42.86 40.91 39.13 37.50 36.00 Distribution S Per Unit Total Cost $372.29 $351.00 $335.25 5309.94 $298.00 $288.37 $280.00 $274.86 $270.91 $258.13 $255.50 $254.00