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Sonic Boom Corporation sells drum sets. At a price of $600 per set, they sold about 500 sets per month. The new general manager for this product, Ella Sticity, decided that the company needed more revenues and increased the price to $700 per set. However, Sonic Boom is now selling only 200 drum sets per month at the new price. What is the arc price elasticity for this product? Define price elasticity and how it should be used for pricing this product. What do you recommend for the price of this product (e.g. stay at $700 or change, higher or lower?) and what additional information would be useful in the pricing decision? What would be your recommendations for setting up a model to forecast future demand for this product?
Determine whether the following production function exhibits constant, increasing, or decreasing returns to scale
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