Question

Mr. Porter sells 10 bottles of champagne per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively, an increase of _____ and a decrease of _____.

Answer 1

Upon changing the price from $50 to $45, Mr. Porter's quantity effect is an increase of 1 bottle sold per week, while the price effect leads to a total revenue decrease of $5.

Step-by-step explanation:

Mr. Porter experiences a change in total revenue when adjusting the price and quantity of champagne bottles sold. Let's analyze the quantity and price effects:

• Initial revenue: 10 bottles × $50/bottle = $500
• New revenue: 11 bottles × $45/bottle = $495

The quantity effect represents an increase in the amount sold, which is 1 extra bottle per week in this case. The price effect represents the change in revenue caused by altering the price. In this scenario, Mr. Porter sees an increase in quantity of 1 bottle, but a $5 decrease in total revenue.

Therefore, the quantity and price effects on total revenue would be, respectively, an increase of 1 bottle and a decrease of $5.

Answer 2

$45; $50

Step-by-step explanation:

Given that,

Quantity sold (at price = $50 per bottle) = 10 bottles of champagne

Quantity sold (at price = $45 per bottle) = 11 bottles of champagne

Therefore,

Quantity effect (keeping the price unchanged):

= (11 - 10) × $45

= $45

Price effect (keeping the quantity unchanged):

= ($45 - $50) × 10

= - $50

Hence, total revenue experiences an increase of $45 and a decrease of $50.