TheNile.com, the online bookseller, wants to increase its total revenue. Currently, every book it sells is priced at $10.50. One suggested strategy is to offer a discount that lowers the price of a book to $9.50, a 10% reduction in price using the midpoint method. TheNile.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount.
a. Using the midpoint method, calculate the price elasticities of demand for Group A and Group B.
b. Explain how the discount will affect total revenue from
each group.
c. Suppose TheNile.com knows which group each customer
belongs to when he or she logs on and can choose
whether or not to offer the 10% discount. If TheNile.com
wants to increase its total revenue, should discounts be
offered to Group A or to Group B, to neither group, or to
both groups?