RCO Ltd is a UK based electronics manufacturer and retailer. Its main products are Netbook computers, PCs and Electronic Calculators. The current price of the Netbook is £500, the PC is £800 and the calculator is £40. This year the firm sold 10,000 Netbooks, 20,000 PCs and 1 million calculators.
In an attempt to improve revenue the managers of the firm have decided to increase all prices by 10%. Market research has suggested that the price elasticity of demand for each product is: Netbook: -1.5; PC: -2.5; Calculator: -0.6.
You have been asked to evaluate and comment on the planned price increases.
Would a 10% price reduction have been better for some or all of the products? (support your answer with calculations showing the change in sales for each item after the price change) (6 marks)
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