TABLE OF CONTENTS

Question 1 of 3

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You must read each slide, and complete any questions on the slide, in sequence.

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:

Group B:

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.
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.

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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Suppose 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 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?
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