company produces two related products, the demand functions of which are given as 15 2p₂ +3 92 = 11 - 40 P₁+ 7 where p₁ and p2 are the unit prices for the two products and q₁ and q2 are the amounts demanded. Currently, p₁ = 3 and p₂ = 1. The cost function for the company is given by 91 = 11- P₁ - - 3p₂ C = √0.3q1² -0.69192 +0.492² + 1.8q₁ + 1.2q2 + 0.3. We assume that everything that is produced, is sold as well. a) Are the two products complements or substitutes? Explain. b) Estimate the effect on the demand of the first good if the current unit prices are both increased by 0.02 monetary units, using a linear approximation. Give a precise c) Compute the current elasticity of cost C = C(q₁,92) of the first good. economic meaning of this number. (Note that we d) Compute the current marginal cost of the price of the first good. consider cost as a function of the prices now: C = C(P₁, P₂).)

company produces two related products, the demand functions of which are given as 15 2p₂ +3 92 = 11 - 40 P₁+ 7 where p₁ and p2 are the unit prices for the two products and q₁ and q2 are the amounts demanded. Currently, p₁ = 3 and p₂ = 1. The cost function for the company is given by 91 = 11- P₁ - - 3p₂ C = √0.3q1² -0.69192 +0.492² + 1.8q₁ + 1.2q2 + 0.3. We assume that everything that is produced, is sold as well. a) Are the two products complements or substitutes? Explain. b) Estimate the effect on the demand of the first good if the current unit prices are both increased by 0.02 monetary units, using a linear approximation. Give a precise c) Compute the current elasticity of cost C = C(q₁,92) of the first good. economic meaning of this number. (Note that we d) Compute the current marginal cost of the price of the first good. consider cost as a function of the prices now: C = C(P₁, P₂).)

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter14: Pricing Techniques And Analysis

Section: Chapter Questions

Problem 3E

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