Manning, Inc. is the leading manufacturer of garage doors. Demand for residential garage door sales depends, of course, on the rate of new home building activity, which, in turn, depends on changes in income per capita. During the past year, Manning sold 10,000 garage doors at an average price of $1,500 per door.
In the upcoming year, disposable income per capita is expected to increase from $32,000 to $34,000. Without any price change, Manning expects upcoming year sales to rise to 12,000 units.
Given this information:
Calculation: Calculate the arc income elasticity of demand.
Arc Price: The company economist estimates that if the price of doors is increased by $100 per door, they could sell 11,500 doors. What is the arc price elasticity, and what would be the company's revenue?
Prices: Should Manning raise the price even more? If so, to what amount? If not, why not?