The catalog operation of a large clothing company sends out four regular catalogs per year and one summer sale catalog. Management has recently conducted a pricing test on their line of children’s T-shirts. The test was carried out with their annual summer sale catalog. The T-shirts are usually discounted to $12.99 in this catalog. For this test, the first customer on the mailing list received a catalog with the T-shirts priced at $12.99 the second customer on the mailing list received a catalog with the T-shirts priced at $10.99. The third customer received the $12.99 catalog the fourth received the $10.99 catalog, and so on throughout the entire 500,000 customer mailing list. The sales results of this test are as follows:
Catalog Price Number of T-Shirts Sold
$12.99 ………………………………. 6,743
$10.99 ………………………………. 10,757
(a) Based on this price test, calculate the price elasticity for these T-shirts. Show your work.
(b) The price of these T-shirts in the regular catalog has been $16, and the marketing manager is considering raising it to $18. She is planning to use the price elasticity calculated in Part (a) to help her make this decision, and she has asked for your advice concerning this plan. How would you respond?