Reference no: EM131698330

You are an orange producer and seller in the Dallas Forth-worth Metropolitan Area. You would like to increase your revenue from sales by 5%. You believe that you can do so by increasing the price by 5%. While you are thinking about such an adjustment, you meet with two of your friends: Tom who produces and sells bagged salads and Jason who produces and sells lemons. When you inform them about your decision to increase the price, Tom was shocked. He told you that you must be crazy even to think about increasing the price. He suggested just the opposite that you should decrease your price to increase your total revenue. He was very confident with his suggestion and he told you that that is what he did last year and as a result he increased his total revenues.

Jason, on the other hand, supported your argument. He strongly believes that you need to increase your price to increase your revenue. He told you that that is what he did last year and by doing so, he was able to increase his revenues significantly. The only suggestion he had was that you need to increase your price by more than 5% to be able to increase your total revenue by 5%.

Having listened to both of your friends, you got confused. You decided that, first you need to explain why your friends are suggesting seemingly contradicting strategies, then you will decide your own strategy. You remembered that both of your friends are referring to commodity and food elasticities by USDA, The US Department of Agriculture (www.usda.gov) and decided to start doing your research from that website.

Who is right? Please explain why your friends have different opinions and come up with your own strategy. What factors do you have to take into account when making a decision? Do well to use managerial economics terms.Please answer ASAP.