(a) Given the Cournot aggregation for two commodities as a, (e,, +1)+a,E-0 wherea1 and az represent the budget shares of commodities 1 and 2 respectively; ell is ownprice elasticity of commodity 1, and E21 is the cross price elasticity of commodity 2with respect to price of commodity 1. If the own price elasticity of commodity 1 is -2 and the consumer spends 40% of his income on commodity 1, compute the crossprice elasticity of commodity 2 with respect to the price of commodity 1 and indicatethe relationship between the two commodities.(b) Consider total expenditure on a commodity as TE = pq . Show that for a fairly eiasticdemand for the commodity, an increase in price of the commodity results in adecrease in consumer's total expenditure.(c) The short-run production function of a Farmer is given by q = 6le-le where a istotal output; I is land input and e is labour input represented by number of workersengaged on the farm. Assuming land is fixed at 5 hectares, determine thenumber of workers engaged on the farm that captures the relevant region of thisrange of therational farmer.

“Since you have asked multiple questions, we will solve the first question for you. If you want any…

(a) Given the Cournot aggregation for two commodities as a, (E+1)+a,E21 = 0 where a1 and a2 represent the budget shares of commodities 1 and 2 respectively; el1 is owWn price elasticity of commodity 1, and E21 is the cross price elasticity of commodity 2 with respect to price of commodity 1. If the own price elasticity of commodity 1 is- ½ and the consumer spends 40% of his income on commodity 1, compute the cross price elasticity of commodity 2 with respect to the price of commodity 1 and indicate the relationship between the two commodities. %3D

(a) Given the Cournot aggregation for two commodities as a, (E+1)+a,E21 = 0 where a1 and a2 represent the budget shares of commodities 1 and 2 respectively; el1 is owWn price elasticity of commodity 1, and E21 is the cross price elasticity of commodity 2 with respect to price of commodity 1. If the own price elasticity of commodity 1 is- ½ and the consumer spends 40% of his income on commodity 1, compute the cross price elasticity of commodity 2 with respect to the price of commodity 1 and indicate the relationship between the two commodities. %3D

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 6MC

See similar textbooks

Similar questions

Kk177. Suppose the market demand function is given as;Qd = 5I + 10P_1 − 0.4P^2where I is income in $1000 and P1 is price of a related good.(a) What is the relation between these two goods?(b) Calculate the income, cross price, and own price elasticities of demand if I = $50,000, P1 = $10 and P = $20.(c) At what price is demand unit elastic if I = $50,000 and P1 = $10?
When trying to assess differences in her customers, Claire—the owner of Claire’s Rose Boutique—noticed a difference between the typical demand of her female versus her male customers. In particular, she found her female customers to be more price sensitive in general. After conducting some sales analysis, she determined that her female customers have the following demand curve for roses: QF = 24 − 2P. Here, QF is the quantity of roses demanded by a female customer and P is the price charged per rose. She determined that her male customers have the following demand curve for roses: QM = 27 − P. Here, QM is the quantity of roses demanded by a male customer. If two unaffiliated customers walk into her boutique, one male and one female, determine the demand curve for these two customers combined (i.e., what is their aggregate demand?).
You have been appointed the new manager for Ghana Airways Company Limited, an international airline company that flies from the Kotoka International Airport in Accra to Heathrow Airport in London every day. The airline is described as a monopolist and has the possibility of discriminating between its Business and Economy Travelers. To help you determine the prices your services appropriately to maximise profit, you engaged an economist who estimated the demand function for both Economy and Business Travelers as: Q1 = 24 – 0.2P1 Economy Travelers Q2 = 10 – 0.05P2 Business Travelers Where Q1 and Q2 are the respective numbers of Economy and Business Travelers and P1 and P2 are their respective fares (in GH¢). If the Total Cost (TC) of this airline company for flying these two categories of travellers is given as TC = 35 + 40Q, where Q = Q1 + Q2. What can you say about the fares, number of travellers and profit of Ghana Airways Company Limited, with and without price discrimination
You have been appointed the new manager for Ghana Airways Company Limited, an internationalairline company that flies from the Kotoka International Airport in Accra to Heathrow Airport inLondon every day. The airline is described as a monopolist and has the possibility of discriminatingbetween its Business and Economy Travelers. To help you determine the prices your servicesappropriately to maximise profit, you engaged an economist who estimated the demand function forboth Economy and Business Travelers as:Q1 = 24 – 0.2P1 Economy TravelersQ2 = 10 – 0.05P2 Business TravelersWhere Q1 and Q2 are the respective numbers of Economy and Business Travelers and P1 and P2 aretheir respective fares (in GH¢). If the Total Cost (TC) of this airline company for flying these twocategories of travelers is given as TC = 35 + 40Q, where Q = Q1 + Q2.What can you say about the fares, number of travelers and profit of Ghana Airways CompanyLimited, with and without price discrimination?
An analyst for FoodMax estimates that the demand for its Brand X potato chips is given by ln QdX = 12.14 – 2.8 ln PX + 3.4PY + 0.7 ln AX, where Qx and PX are the respective quantity and price of a four-ounce bag of Brand X potato chips, PY is the price of a six-ounce bag sold by its only competitor, and AX is FoodMax’s level of advertising on Brand X potato chips. Last year, FoodMax sold 7 million bags of Brand X chips and spent $0.42 million on advertising. Its plant lease is $2.1 million (this annual contract includes utilities) and its depreciation charge for capital equipment was $2.8 million; payments to employees (all of whom earn annual salaries) were $0.8 million. The only other costs associated with manufacturing and distributing Brand X chips are the costs of raw potatoes, peanut oil, and bags; last year FoodMax spent $2.8 million on these items, which were purchased in competitive input markets. Based on this information, what is the profit-maximizing price for a bag of…
Assume you are the Director of Marketing for Majjus Enterprise, a firm that produces a new product called African Solar. Your company sells to two distinct geographical markets-East Legon and Nima. Majjus Enterprise is described as a monopolist and has the possibility of discriminating between its East Legon and Nima Markets. In order to derive the maximum profit from the production process, you engaged the services of an Econometrician, who estimated the demand functions for both East Legon and Nima markets to be: Q1 = 24 – 0.2P1 East Legon Market Q2 = 10 – 0.05P2 Nima Market Where Q1 and Q2 are the respective quantities of African Solar demanded in the East Legon and Nima markets and P1 and P2 are their respective prices (in GH¢). If the Total Cost (TC) of Majjus Enterprise for producing African Solar for these two markets is given as TC = 35 + 40Q, where Q = Q1 + Q2. What profit will Majjus Enterprise make with and without price discrimination? What…
An economic consultant for Gumbcorp. recently provided the firm’s marketing manager with this estimate of the demand function for the firm’s product: Qxd=12,000 -3Px + 4Py - 1M + 2Ax where Qxd represents the amount consumed of good X, Px is the price of good X, is the price of good Y, M is income, and Ax represents the amount of advertising spent on good X. Suppose good X sells for $200 per unit, good Y sells for $15 per unit, the company utilizes 2,000 units of advertising, and consumer income is $10,000. How much of good X do consumers purchase? Are goods X and Y substitutes or complements? Is good X a normal or an inferior good
The MacDonald sells two popular packages of breakfast all day long: Mac A and Mac B. The sales of these products are not independent of each other (in economics, we call these substitutable products, because if the price of one increases, sales of the other will increase). The store wishes to establish a pricing policy to maximize revenue from these products. A study of price and sales data shows the following relationships between the quantity sold (Q) and prices (P ) of each model: QA = 20 - 0.62PA + 0.3PBQB = 29 + 0.1PA - 0.6PBi . Construct a model for the total revenue and implement it on a spreadsheet. b. Develop a two-way data table to estimate the optimal prices for each product in order to maximize the total revenue. c. Use "Solver" to find the optimal prices.
ollowing is the payoff table for the Pittsburgh Development Corporation (PDC) Condominium Project. Amounts are in millions of dollars. State of Nature Decision Alternative Strong Demand S1 Weak Demand S2 Small complex, d1 8 7 Medium complex, d2 14 5 Large complex, d3 20 -9 Suppose PDC is optimistic about the potential for the luxury high-rise condominium complex and that this optimism leads to an initial subjective probability assessment of 0.8 that demand will be strong (S1) and a corresponding probability of 0.2 that demand will be weak (S2). Assume the decision alternative to build the large condominium complex was found to be optimal using the expected value approach. Also, a sensitivity analysis was conducted for the payoffs associated with this decision alternative. It was found that the large complex remained optimal as long as the payoff for the strong demand was greater than or equal to $17.5 million and as long as the payoff for…
Assume that there are two critical industries in Malaysia, one being the petroleum industry and another car industry. Using the knowledge of ‘inelasticity & elasticity demand’, explain how would you increase the revenue of the firm? Demonstrate the method you employ to enhance the saleability of the product in each industry. (Hint: This question is not related to covid-19 or the story above)
If quantity demanded for product A increased from 50 to 60 units due to change in price of its related good B from P5 to P8, identify the type of demand elasticity, its value and type of related products.Single choice. a. cross elasticity value of 0.33 and products A & B are substitute goods b. price elasticity value of 0.33 and products A & B are complementary goods c. cross elasticity of 0.33 and products A & B are complementary goods d. cross elasticity value of 3.0 and products A & B are substitute goods
India’s Tata Motors was moving forward with a strategy focused on small inexpensive cars, even though this was a highly competitive market segment, dominated by Japanese auto makers. The company’s aim was to design a small car that would be significantly cheaper to make and buy than any other model, and thus to satisfy India’s mass market demand for low – cost transportation. The result was the Nano, with a sales price of 100, 000 rupees (US$2,500), which was half the price of its closest competitor in India. Tata Motors achieved this by designing everything from scratch, deleting features that were taken for granted by other auto makers (for example air conditioning, power brakes, radios), using lightweight steel and an aluminium engine, and building in fuel efficiency. Being the part of such a large TATA group is itself a competitive advantage. This affiliation provides the company with the needed knowledge and technology resources for taking their business to various parts of the…