Business, 20.02.2020 08:28 dayana72

Recently, Verizon Wireless ran a pricing trial in order to estimate the elasticity of demand for its services. The manager selected three states that were representative of its entire service area and increased prices by 5% to customers in those areas. One week later, the number of customers enrolled in Verizon's cellular plans declined 4% in those states, while enrollments in states where prices were not increased remained flat. The manager used this information to estimate the own-price elasticity of demand, and based on her findings, immediately increased prices in all market areas by 5% in an attempt to boost the company's 2016 annual revenues. One year later, the manager was perplexed because Verizon's 2016 annual revenues were 10% lower than those in 2015. The price increase apparently led to a reduction in the company's revenues. Did the manager make an error?

A) Yes: The one-week measures show demand is inelastic, so a price increase will decrease revenues.

B) No: The cell phone market must have changed between 2011 and 2012 for this price increase to lower revenues.

C) Yes: The one-week measures show demand is elastic, so a price increase will reduce revenues.

D) Yes: Cell phone elasticity is likely much larger in the long-run than the short-run.

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Recently, Verizon Wireless ran a pricing trial in order to estimate the elasticity of demand for its...