A young entrepreneur, Adrianna, from Tobago manages two businesses – a bakery and a car rental. In assessing her business strategy, she hires an economist to research both businesses. Below is data from the report. The Bakery There are ten other bakeries in the neighborhood charging similar prices. The elasticities of demand facing this particular business are as follows: PED -2.5 YED 3.0 XED 1.2 Competing businesses are expected to move into the area soon, furthermore the government plans to implement a tax on flour. Car Rental There are about four other car rentals operating in close proximity to Adrianna’s car rental business. Only a few years earlier, there were seven similar businesses. The elasticities of demand in this case are as follows: PED -3.0 YED -2.5 XED 2.9 Ownership of cars is increasing and it is expected that the majority of residents in that community would own vehicles soon. Questions Discuss the elasticities of demand facing the bakery. If Adrianna wanted to raise revenue from the bakery, should she raise or lower the price they currently charge? Give a proper explanation for your answer. Discuss the elasticities of demand facing the car rental business From the information given decide whether The products sold by the bakery are normal or inferior goods. Explain your position. The service provided by the car rental is a normal good or an inferior good. Explain your position. (f) Explain whether the couple should expand or close down (i) The bakery (ii) The car rental
A young entrepreneur, Adrianna, from Tobago manages two businesses – a bakery and a car rental. In assessing her business strategy, she hires an economist to research both businesses. Below is data from the report.
The Bakery
There are ten other bakeries in the neighborhood charging similar prices. The
YED 3.0
XED 1.2
Competing businesses are expected to move into the area soon, furthermore the government plans to implement a tax on flour.
Car Rental
There are about four other car rentals operating in close proximity to Adrianna’s car rental business. Only a few years earlier, there were seven similar businesses. The elasticities of demand in this case are as follows:
PED -3.0
YED -2.5
XED 2.9
Ownership of cars is increasing and it is expected that the majority of residents in that community would own vehicles soon.
Questions
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Discuss the elasticities of demand facing the bakery.
-
If Adrianna wanted to raise revenue from the bakery, should she raise or lower the
price they currently charge? Give a proper explanation for your answer. -
Discuss the elasticities of demand facing the car rental business
-
From the information given decide whether
-
The products sold by the bakery are normal or inferior goods. Explain your position.
-
The service provided by the car rental is a normal good or an inferior good. Explain your position.
(f) Explain whether the couple should expand or close down
(i) The bakery
(ii) The car rental
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