Compute the approximate elasticity of demand that would result in no change in total contribution for Brand “A” and Brand “B”, respectively, after implementing the 15% price cuts. Without any further information which brand would you recommend for a price cut if management is profit oriented? Explain!
“A”
1) Unit Price – 2.85
Unit Volume/Year – 750,000
“B”
Unit Price – 3.61
Unit Volume/Year – 1,250,000
2) 250000-750000/750000=.67%
3) 3.61-2.85/2.85 = .27%
4) Percent change in Quantity/Percent Change in Price
.67/.27 = Price of Elasticity of Demand