Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 8, Problem 8CACQ
The elasticity of
- Determine the firm’s optimal advertising-to-sales ratio.
- If the firm’s revenues are $40,000, what is its profit-maximizing level of advertising?
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The elasticity of demand for a firm’s product is -5 and its advertising elasticity of demand is 0.26. Determine the firm’s optimal advertising-to-sales ratio. If the firm’s revenues are 500,000, what is its profit-maximizing level of advertising?
The elasticity of demand for a firm’s product is –2.5 and its advertising elasticity of demand is 0.2.
a. Determine the firm’s optimal advertising-to-sales ratio.
b. If the firm’s revenues are $40,000, what is its profit-maximizing level of advertising?
In an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price and an 11 percent increase in advertising. If the price elasticity of demand is −1.5 and the advertising elasticity of demand is +0.6, would you expect an increase or decrease in total revenues?
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Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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- The price elasticity of demand for your product is 2.0, and your marginal cost is $30. What is your profit-maximizing price? Suppose that you can run a new advertising campaign and differentiate your product by emphasizing its unique features, thereby decreasing the price elasticity of demand to 1.8. What is your new profit-maximizing price?arrow_forwardIf your marketing department estimates that the semiannual demand for the highlander is q=150,000. - 1.5 P, what price should you charge in order to maximize revenues from the sales of highlanderarrow_forwardAn international airline in Ghana ,Emirates ,estimates that the price elasticity of demand for business who travellers weekdays is -3,while that for vacation travellers who travel on weekends is -5 .if the aim of the airline is to maximise profit what pricing strategy will you recommend to the airline and why?arrow_forward
- Explain why the advertising elasticity of the market demand for beer may be less than the advertising elasticity of the demand for one particular brand.arrow_forwardIn an attempt to increase revenues and profits, a firm is considering a 4% increase in price, an 11% increase in advertising. If the price elasticity of demand is -1.5 and the advertising elasticity of demand is +0.6, would you expect an increase or decrease in total revenuesarrow_forwardIn a statement to Gillette’s shareholders, its CEO indicated, “Despite several new product launches, Gillette’s advertising-to-sales declined dramatically . . . to 7.5 percent last year. Gillette’s advertising spending, in fact, is one of the lowest in our peer group of consumer product companies.” If the elasticity of demand for Gillette’s consumer products is similar to that of other firms in its peer group (which averages –4), what is Gillette’s advertising elasticity? Is Gillette’s demand more or less responsive to advertising than other firms in its peer group? Explainarrow_forward
- Company A sells 100,000 bicycles each year at RM250 per bicycle. From past experience, the manager of Company ABC believes the price elasticity of the company’s bicycles is approximately - 0.8. The manager is thinking of increasing the bicycle’s prices to RM300 per bicycle, an increase of 20%. Question 1: Calculate the anticipated % change in the company’s sales volume. Question 2:Calculate the new total revenue. Question 3: Should the manager of company ABC change his pricing strategy? Justify your answerarrow_forwardAn end-of-aisle price promotion changes the price elasticity of a good from -2 to -3 . Suppose the normal price is$26, revenue with marginal cost at the initial elasticity of -2 . What should the promotional price be when the elasticity changes to -3 ? (Hint: In other words, what price will equatemcost?)$11.70 $15,60 $13.6 $19.50arrow_forwardTotal revenue from the sale of X is given by the equation R=60Q-Q2. Calculate the value of marginal revenue when the point price elasticity of demand when marginal revenue is -2.arrow_forward
- A movie theater company obtains the following estimated elasticities of demand. The absolute value of the short-run price elasticity of demand for movie tickets is 0.85. The absolute value of the long-run price elasticity of demand for movie tickets is 3.2. The cross-price elasticity of demand for good X, another product sold by the theater, with respect to the price of movie tickets is – 0.26. The income elasticity of demand for movie tickets is 0.75. Answer each of the following by referring to the given elasticities. (a) If the theater raises movie ticket prices by 10 percent, by what percentage and in what direction will the quantity demanded for movie tickets change in the short run? (b) Explain why the short-run price elasticity of demand for movie tickets differs from the long-run price elasticity of demand for movie tickets. (c) What will happen to total revenue from movie ticket sales in the long run if movie ticket prices increase? Explain using the relative percentage…arrow_forwardSuppose Samsunk sells her tablet computers at a price of $3,000. Estimates show that the manufacturing cost of each tablet computer is constant at $900. Calculate the Lerner Index of Samsunk on her tablet computers and the implied demand elasticity for her tablet computers.arrow_forwardAn end-of-aisle price promotion changes the price elasticity of a good from −4 to −5. Suppose the normal price is $48, which equates marginal revenue with marginal cost at the initial elasticity of –4.arrow_forward
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