Experiencing decrease in demand for their aluminium products

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Alcoa Aluminium is experiencing a decrease in demand for their aluminium products. They are looking at ways to increase sales and hopefully profits. Alcoa currently sells 65,000 pounds of aluminium a year at an average price of $9 per pound. Fixed costs of producing aluminium are $225,000. Variable costs per pound are $4.75. After consulting with several of the firm’s business analysts the CEO feels they can reduce variable cost by $.50 per pound if they can increase production by 10%. The analysts also feel the arc elasticity of demand for aluminium to be ?1.5. A. How much would Alcoa have to reduce the price of aluminium to increase quantity sold by 10%? B. Calculate the firm’s total revenue, total cost and total price before and after the price cut. Did the price cut achieve a result that was beneficial to the business?

Reference no: EM13927788

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