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Material Type: Assignment; Class: Prin of Microeconomics; Subject: Economics; University: Shepherd University; Term: Spring 2009;
Typology: Assignments
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You may write your answers in the spaces provided on this sheet. If you need extra space, use the backs of pages. TOTAL POINTS = 40 NAME_________________________________
Volume of sales after 10% discount (in millions)
a. Using the midpoint formula, calculate the price elasticities of demand for Group A and for Group B. SHOW WORK. (10 points)
b. How will the discount affect total revenue from each group (i.e. in what direction will the price discount move total revenue)? Explain intuitively why total revenue for each group will move in the direction it does. (10 points) c. Suppose TheNile.com knows which group each customer belongs to when he or she logs on and can choose whether or not to offer the 10% discount. If TheNile.com wants to increase its total revenue, should discounts be offered to customers in Group A or to those in Group B, to neither group, or to both groups? Explain your reasoning intuitively. (8 points)