1. Your company's competitors has lowered it prices by 20%. Your staff economist has estimated that the the cross price elasticity between your product and the competitor's product is -1.2. The boss wants to know how this will affect your companies revenues (sales)?
2. The income elasticity for your companies product A is 0.5; for product B he income elasticity it is 1.2; and for product C the income elasticity is -1.2. The country is in a recession and personal income is forecasted to fall by 2.2%. What is the forecasted revenue (sales) impact on product A, B and C, respectively. Which product would do the best (by sales growth) by how much and why?
3. Your boss wants to increase total revenue by 15%. Your staff economist has estimated that the price elasticity is 0.8. Should the company raise or lower its prices and by how much to affect a 15% revenue increase?