Explore the assumptions underlying price elasticity – Microeconomics
In 2000 the market demand for personal computers was 129 million units and the average manufacturer’s price was $1922. The average gross was 20%. by 2003, prices dropped to an average of $1708 and demand grew to $161 million. Average gross margins slipped to 17% of sales.
i) calculate the annual % rate of the change in sales revenues and the total contribution over this three years period. explain your reasoning
ii)Explore the assumptions underlying price elasticity of demand and apply them to the above set of circumstances. do you believe the computation of elasticity is an indicator price sensitivity? explain.
