Chapter 1. Chapter 6

Step 1

Work It Out
Work It Out
Chapter 6
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Question

Nile.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Nile.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.

Group A (sales per week) Group B (sales per week)
Volume of sales before the 10% discount 1.55 million 1.50 million
Volume of sales after the 10% discount 1.65 million 1.70 million
Table

Using the midpoint method, calculate the price elasticity of demand for group A and B in the table.

Group A:XUDQwJci5iCNZdnH

Group B:y8Sz/PJSTJs=

Using the midpoint method, the percent change in the quantity demanded by group A is

And since the change in price is 10%, the price elasticity of demand for group A is

Next we need to use the midpoint method to find the percent change in the quantity demanded by group B:

And since the change in price is 10%, the price elasticity of demand for group B is

For further review see section “An Alternative Way to Calculate Elasticities: The Midpoint Method”.
Using the midpoint method, calculate the price elasticity of demand for group A and B in the table.
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Step 2

Question

Referring to the table, determine the impact of Nile.com’s discount on total revenue. After the discount, the company’s total revenue will (increase, decrease) ______ for group A and (increase, decrease) ______for group B.

Group A (sales per week) Group B (sales per week)
Volume of sales before the 10% discount 1.55 million 1.50 million
Volume of sales after the 10% discount 1.65 million 1.70 million
Table
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Step 3

Question

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