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The president of the Micro Brewing Corporation asks you, as the company economist, to forecast changes in consumer beer purchases associated with a proposed price change. You conduct a survey and find that if the price of a six-pack increases from $5.50 to $7.50, the quantity demanded will decrease from 2200 units to 1800 units a month. Should the Micro Brewing Corporation raise its price? Explain the economic basis for this recommendation to the president

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Answer:

It is more profitable to raise the selling price by $2.

Explanation:

To determine whether the company should raise the selling price, we need to determine the effect on income. The best option is the one with the higher sales revenue.

Sales revenue= selling price * number of units

Current:

Sales revenue= 5.5*2,200= $12,100

Proposal:

Sales revenue= 7.5*1,800= $13,500

It is more profitable to raise the selling price by $2.

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