Elasticity and Consumer Theory - Essay Example

The discount will affect the total revenue for each of the two groups in numerous ways. Group A is highly sensitive to any increase in discount hence, any percentage change in discount leads to an increase in the company’s total revenue. On the contrary, group B is less sensitive to the percentage change in discount allowed. This is because a percentage change in discount leads to an increase in the company’s total revenues (Moffatt, para.4).

c). If Nile.Com wants to increase its total revenue it should increase the discount to customers in group A because they are highly sensitive to discount and hence they buy a lot. On the other hand, discounts should not be given to group B because they are highly insensitive to any change in the discount given (Moffatt, 2014).

QUESTION 2
a). Budget Line
Source: Author

b). The marginal utility for each Apple and Pizza and amount of dollars spent on each Apple and Pizza may be calculated as follows
Marginal utility= Change in Total Utility
Change in Quantity
Marginal utility for Apple in units=22.25, 29.7, 44.5, 59.3,89 and 178
Marginal utility for Apple in dollars=$45.1, $55, 4, $89, $118.6, $178 and $356
Marginal utility for Pizza in units=24, 28, 33.6,42,56 and 84
Marginal utility for Pizza in dollars=$24, $28, $33.6, $42, $56 and $84

c). The Bruno optimal consumption will be 33 Apples and 33 Pizzas respectively.
d). The total utility for consuming the optional combination of Apple and Pizza is 346 units
e). If the price of Apple decrease by $1per unit C there will be no change in optimal consumption and therefore, optimal consumption will be 33 units
f). Bruno Demand curve for Apple will be as follows given answers c and e.
price

Optimal point (33 units)
Demand
Qty
Source: Author Read More