The Relatively Little Used Blue Jean Company Is Trying to Capitalize

Essay

The Relatively Little Used Blue Jean Company is trying to capitalize on the booming market for pre-worn blue jeans. It has been selling 500 pairs of blue jeans per week at $15.00 each but is considering lowering its price to $12.00. The outside consultant they hired estimated that its price elasticity of demand to be -5.00 over this price range.
a. What would be the new quantity sold if the price were lowered to $12.00?
b. What would be the new level of total revenue?
c. What additional information does Relatively Little Used need to know before it can determine whether or not a price decrease to $12.00 will increase profits?
d. Suppose that following its price reduction Relatively Little Used's nearest competitor, The Actually Worn But Not Trashed Blue Jean Company lowers its price from $12.00 to $9.00 a pair. If the cross price elasticity is .24, what will be that affect of Actually Worn's price reduction on Relatively Little Used's quantity sold?