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: Cengage Learning
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Question
Chapter 4, Problem 6E
(a)
To determine
(b)
To determine
Income
(c)
To determine
Cross
(d)
To determine
Characterization of the demand for haddock.
(e)
To determine
The percentage change in the quantity of haddock demanded when disposable income is expected to increase by 5%.
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After a careful statistical analysis, the Chidester Company concludes the demand function for its product is
Q = 500 - 3P + 2Pr + 0.1I
where Q is the quantity demanded of its product, P is the price of its product, Pr is the price of its rival’s product, and I is per capita disposable income (in dollars). At present, P = $10, Pr = $20, and I = $6,000.
What is the cross- price elasticity of demand between its product and its rival’s product?
a.
0.0388
b.
0.0721
c.
0.0360
d.
-0.0360
Recently, Verizon Wireless ran a pricing trial in order to estimate the elasticity of demand for its services. The manager selected three states that were representative of its entire service area and increased prices by 5 percent to customers in those areas. One week later, the number of customers enrolled in Verizon’s cellular plans declined 4 percent in those states, while enrollments in states where prices were not increased remained flat. The manager used this information to estimate the own-price elasticity of demand and, based on her findings, immediately increased prices in all market areas by 5 percent in an attempt to boost the company’s 2016 annual revenues. One year later, the manager was perplexed because Verizon's 2016 annual revenues were 10 percent lower than those in 2015—the price increase apparently led to a reduction in the company’s revenues.Did the manager make an error? Explain
Suppose the supply and demand curves for a particular product are given by:
QS = -20 + 2P , QD =100 - 2P
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Calculate both the demand and supply elasticity around the equilibrium point. [Hint: you can use either the point method or the average arc (midpoint) method.]
Chapter 4 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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