Demand Estimation

5612 WordsMay 7, 201323 Pages
TUTORIAL 1: DEMAND THEORY 1a) The demand curve for haircuts at Terry Bernard’s Hair Design is P = 15 – 0.15Q where Q is the number of cuts per week and P is the price of a haircut. Terry is considering raising her price above the current price of RM9. Terry is unwilling to raise price of the price hike will cause revenue to fall. Should Terry raise the price of haircuts above RM9? Why or why not? b) Terry is trying to decide on the number of people to employ based on the following short-run production function: Q = 12L – 0.5L2 Where Q is the number of cuts per week and L is the number of workers. Suppose the price of a haircut is RM9, how many people should be hired if she pays each worker RM60…show more content…
b. At what average price level would supply equal zero? c. Calculate the equilibrium price/ output combination. 10. The Creative Publishing Company (CPC) is a coupon book publisher with markets in several southeastern states. CPC coupon books are either sold directly to the public, sold through religious and other charitable organizations, or given away as promotional items. Operating experience during the past year suggests the following demand function for CPC’s coupon books: Q = 5000 – 4000P + 0.02Pop + 0.5I + 1.5A, Where Q is quantity, P is price($), Pop is population, I is disposable income per household ($), and A is advertising expenditures ($) a. Determine the demand faced by CPC in a typical market in which P = $10, Pop = 1,000,000 persons, I = $30,000, and A = $10,000. b. Calculate the level of demand if CPC increases annual advertising expenditures from $10,000 to $15,000. c. Calculate the demand curves faced by CPC in Parts (a) and (b). 11. The demand curve for a hair cut at Lucky Star Hair Saloon is estimated to be P = 30 – 0.2Q Where Q is the number of hair cut and P is the price per hair cut Current price level is RM10 for a hair cut. a. Calculate the price elasticity for hair cut at Lucky Star Hair Saloon at the given price. b. Should Lucky Star Saloon raise the current price to increase its total

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