Reference no: EM132410803

The economy of a certain country has a labor-intensive manufacturing sector. One of its components is the furniture industry, which has many producers and generates a good return on profits. However, global situations increase operating costs and affect this industrial sector to a lesser or greater degree, which is very competitive. In that industry, the company A&H Furniture, specialized in rustic furniture, operates and distributes both for the local and international markets. Given the increase in operational costs and their effects, A&H Furniture considers the following:

1. The magnitude of the increase in operational costs over your total income and profit.
2. The increase in sales prices of your furniture for both local and international distribution.
3. Adjustments in functional processes or organizational charts that allow savings that compensate for the increase in operational costs.
4. The convenience of business alliances or outsourcing of professional services.

so,

1. What kind of demand elasticity price should the furniture have? Why?
2. How does this situation affect your total income and earnings? Explain your answer.
3. If A&H Furniture decided to increase the price of furniture, how would the quantity demanded and the relationship between price elasticity and total income be affected, keeping everything else constant?