On October 1, 2009, the Nintendo Wii's Japanese Price Dropped

question 3

Multiple Choice

On October 1, 2009, the Nintendo Wii's Japanese price dropped from ¥25,000 to ¥20,000. In the three months after the price drop, Japanese sales of the Wii were approximately 1,040,000. Twelve months earlier, over the same interval at the high price, sales totaled 890,000. Using the midpoint method, what is the absolute value of the price elasticity of demand of a Wii console? Is it an elastic or inelastic good?

• A) 1.43; inelastic
• B) 0.7; inelastic
• C) 1.43; elastic
• D) 0.7; elastic

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the proportion of fixed costs in a company's cost structure.

Forecasting Risk

The risk associated with the potential for actual results or outcomes to differ significantly from forecasted or expected results.

Operating Leverage

The degree to which a company or project can increase operating income by increasing revenue, emphasizing the fixed versus variable costs structure.

Break-Even Point

The sales level at which a company neither makes a profit nor incurs a loss.