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The Stopdecay Company sells an electric toothbrush for $25. Its sales have aver- aged 8,000 units per month over the past year.
The Stopdecay Company sells an electric toothbrush for $25. Its sales have aver-aged 8,000 units per month over the past year. Recently, its closest competitor,Decayfighter, reduced the price of its electric toothbrush from $35 to $30. As aresult, Stopdecay’s sales declined by 1,500 units per month.a. What is the arc cross elasticity of demand between Stopdecay’s toothbrushand Decayfighter’s toothbrush? What does this indicate about the relation-ship between the two products?b. If Stopdecay knows that the arc price elasticity of demand for its toothbrushis −1.5, what price would Stopdecay have to charge to sell the same numberof units as it did before the Decayfighter price cut? Assume that Decayfighterholds the price of its toothbrush constant at $30.c. What is Stopdecay’s average monthly total revenue from the sale of electrictoothbrushes before and after the price change determined in part (b)?d. Is the result in part (c) necessarily desirable? What other factors would haveto be taken into consideration?
