You are the manager of a firm that receives revenues of $20,000 per year from product X and $100,000 per year from product Y. The own price elasticity of demand for product X is −2, and the cross-price elasticity of demand between product Y and X is −1.6. Required:
How much will your firm's total revenues (revenues from both products) change if you increase the price of good X by 2 percent?

$3,600

Explanation:

Calculation to determine How much will your firm's total revenues change if you increase the price of good X by 2 percent?

Using this formula

Change in Revenue = [PxQx * (1 + Ex) + PyQy * (Ey)] * % change in P

Let plug in the formula

Change in Revenue= [$20,000*(1-2) +$100,000*(1.6)] * 2%

Change in Revenue= [$20,000*(-1) + $100,000*(-1.6)] * 2%

Change in Revenue= [-$20,000 + (-$160,000)] * 2%

Change in Revenue= $180,000*2%

Change in Revenue=$3,600

Therefore how much will your firm's total revenues (revenues from both products) change if you increase the price of good X by 2 percent will be $3,600

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation: