Question

Revenue at a major cellular telephone manufacturer was $\mathbf{\$}\mathbf{2}\mathbf{.}\mathbf{3}$billion for the nine months ending March $\mathbf{2}$, up 85 percent over revenues for the same period last year. Management attributes the increase in revenues to a $\mathbf{108}\mathbf{\%}$percent increase in shipments, despite a drop in the average blended selling price of its line of phones. Given this information, is it surprising that the company’s revenue increased when it decreased the average selling price of its phones? Explain

Short answer

The corporation cut the price of their phones, which resulted in an increase in demand as well as an increase in profit.

Step-by-step solution

Given Information:

Company’s revenue for $9$months was $\$2.3$billion. The revenue increases in shipments is $108\%$ and drop in the selling price is $21\%$.

To find the demand for firm’s product equation:

Unsurprisingly, the company's revenue climbed when the average selling prices of its phones were reduced.

The company's revenue will increase since the rule of demand states that as the price of goods rises, the demand for the quantity of the goods decreases. The corporation cut the price of their phones, which resulted in an increase in demand as well as an increase in profit.