Please read the attached "Conditioner Parts Inc," and answer the following

CONDITIONER PARTS INC.

You have been appointed manager of a division that sells replacement Parts for air conditioners to wholesalers. The division has been losing money during the last two years, and your mandate is to turn the situation around quickly.

You decide to examine all aspects of the ay division's performance. You appoint five members to a pricing committee and ask them to recommend a procedure for reviewing the pricing decisions for major parts sold by the division. The committee is to report back in two weeks so that a comprehensive review of the pricing of all parts can begin.

The pricing committee members propose the following procedure to determine whether the firm should raise or lower the price of individual parts.

Recommended Methodology

The Committee uses part 1006 to illustrate the recommended procedure.

Step 1. Review the past pricing history to determine when the price changed. The price history of part 1006 reveals the price was $20 per unit until April 1, 1993, when it increased by 50 percent to $30.

Step 2. Assemble monthly sales data (in 1,000 units) to determine how the quantity sold responded to the price change. The sales history of part 1006 from 1992 to 1995 is shown in the accompanying table.

Step 3. Calculate a price elasticity of demand.

The committee cannot agree on how to implement the procedure. They disagree about which quantity data should be used to calculate the price elasticity. Two different proposals are being considered:

Proposal 1: Three members suggest that the price elasticity should be calculated by comparing average sales during the six months before the price increase with average sales during the first six months after the price increase. They argue that the figures for less than six months may contain too many random effects that will distort the price elasticity estimates. If data for more than six months are used, they are afraid that the assumption that other variables are constant will be violated.

Proposal 2: Two members recommend that average sales 12 months before the price increase be compared with average sales for the 12 months after the price increase.

SALES DATA (1000 Units) FOR PART 1006

MONTH 1992 1993 1994 1995

JAN 11 13 11 7

FEB 13 13 15 8

MAR 18 20 16 11

APR 27 22 19 13

MAY 29 27 20 19

JUNE 32 30 23 24

JULY 42 33 26 26

AUG 50 30 30 31

SEP 38 28 24 26

OCT 38 25 18 23

NOV 20 14 12 14

DEC 10 9 5 7

a) Alexandra Wexler reports on the Florida OJ market (WSJ article (2014)

"… retail demand for the beverage continues to slide. U.S. consumers bought 37.05 million gallons of orange juice in the four weeks ended Oct. 25, down 9.4% from a similar period a year earlier, according to Nielsen data published by the Florida Department of Citrus this month. Average prices for the beverage rose 4.8% over the same period to $6.46 a gallon, while total revenue fell 5.1% to $239.24 million, the data showed."

Assuming other things are constant, compute the price elasticity of demand for Orange Juice. Use the computed price elasticity of demand to explain why revenue decreased.