Swadeshi Fabric Ltd. manufactures cotton cloth for industrial usage. During the previous year, Swadeshi sold 5 million square yards of cotton cloth at an average price of Rs.6 per yard. During the current year, percapita GDP is expected to increase to Rs.20,000 from Rs.18,500 during the last year. The marketing director expects that the increase in the per capita GDP would increase the sales to 7 million square yards.
The marketing director believes that expected increase in the percapita GDP would enable him to maintain the sales at previous year’s sales level even if the price is increased to Rs.6.50 per yard.
Required:
a. Calculate the income elasticity and price elasticity of demand for cotton.
b. If Swadeshi Fabric would like to reach a sales level of 7.5 million square yards of cloth for the current year, what should be the new price?
c. Based on your answer in (a) above
i. Explain whether cotton is a luxury or a necessity
ii. Explain the impact of increase in price on the total revenue.
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Mba Hr case study 