Your buddy Amanda wants your advice. She presents you with the utility schedule above and wants to know how many units of Produc
t B she should purchase to maximize her utility. She tells you the price of Product A is $6 and the price of Product B is $10. Amanda informs you she only wants to spend $48. How many units of Product B do you tell Amanda to purchase?
1 answer:
Answer:
Answer for the question:
Your buddy Amanda wants your advice. She presents you with the utility schedule above and wants to know how many units of Product B she should purchase to maximize her utility. She tells you the price of Product A is $6 and the price of Product B is $10. Amanda informs you she only wants to spend $48. How many units of Product B do you tell Amanda to purchase?
is given in the attachment.
Explanation:
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Answer: (1) 700 pizzas
(2) Its revenue increases by $2600.
Explanation:
Given that,
price elasticity of demand for his pizza = -4
Percentage change in price = 10%
Initial Quantity, = 500 Pizzas
Elasticity of demand =
-4 =
= -4 × 0.1
= 0.4
= 0.4
∴ = 700
Initial price, = $20
Changed price, = $18
Revenue at t = 0
= 500 × 20 =$10000
Revenue at t = 1
= 700 × 18 = $12600
Therefore, from the above calculations it was seen that his revenue increases by ($12600 - $10000)= $2600 and its sales increases to 700.