The Nile.com wants to increase its total revenue. Currently every book it sells is priced at $10.50. One suggested strategy is to offer a discount that lowers the price of a book to $9.50, a 10% reduction in price using the midpoint method. TheNile.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount.
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Group A
(sales per week)
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Group B
(sales per week)
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Volume of sales before the 10% discount
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1.55 million
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1.50 million
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Volume of sales after the 10% discount
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1.65 million
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1.70 million
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a) Using the midpoint method, calculate the price elasticity of demand for Group A and Group B.
b) Explain how the discount will affect total revenue from each group (use elasticity values to determine your answers).
c) Suppose the Nile.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 the Nile.com wants to increase its total revenue, should discounts be offered to Group A or to Group B, to neither group, or to both groups?