Nevilâs House of Pain specializes in tattoo art and body piercing. For tattoos, pricing depends on the size and complexity of the tattoo along with the number of colors used. However, most of his customers get a standard tattoo (one hour, one color) and he is currently charging $100 for that service. For piercing, while the price depends on the site on the body, most piercings are either in the ear or the nose and he charges $35 for each of those service. Nevil is a tattoo artist, but does not have a business background. He is worried that he may not be charging the right prices, given the demand for his services and his costs. Due to his concerns, Nevil hires a consulting firm to estimate the demand for his services and then to provide advice on pricing. The consulting firm estimates the daily demand for standard tattoos (one hour, one color) to be given by
Estimated Sales of Tattoos = 56.5 - .3PT - .2PBP + .15(Income)
where PT is the price of a standard tattoo (currently at $100) and PBP is the average price of body piercing (currently at $35). Currently, Nevil sells 24 tattoos on an average day (which implies that the value for income must be 30). Based on this equation, are tattoos and body piercings substitutes of complements? How do you know? Are tattoos inferior, normal or luxury goods? How do you know? Calculate the cross-price elasticity for tattoos with respect to body piercings. Show your work. Calculate the income elasticity for tattoos. Show your work. What is the current price elasticity of demand? If Nevil wants to generate more revenue from selling tattoos, should he increase or decrease his price? Explain.
Nevilâs House of Pain specializes in tattoo art and body piercing. For tattoos, pricing depends on the size and complexity of the tattoo along with the number of colors used. However, most of his customers get a standard tattoo (one hour, one color) and he is currently charging $100 for that service. For piercing, while the price depends on the site on the body, most piercings are either in the ear or the nose and he charges $35 for each of those service. Nevil is a tattoo artist, but does not have a business background. He is worried that he may not be charging the right prices, given the demand for his services and his costs. Due to his concerns, Nevil hires a consulting firm to estimate the demand for his services and then to provide advice on pricing. The consulting firm estimates the daily demand for standard tattoos (one hour, one color) to be given by
Estimated Sales of Tattoos = 56.5 - .3PT - .2PBP + .15(Income)
where PT is the price of a standard tattoo (currently at $100) and PBP is the average price of body piercing (currently at $35). Currently, Nevil sells 24 tattoos on an average day (which implies that the value for income must be 30). Based on this equation, are tattoos and body piercings substitutes of complements? How do you know? Are tattoos inferior, normal or luxury goods? How do you know? Calculate the cross-price elasticity for tattoos with respect to body piercings. Show your work. Calculate the income elasticity for tattoos. Show your work. What is the current price elasticity of demand? If Nevil wants to generate more revenue from selling tattoos, should he increase or decrease his price? Explain.
