The following regression is the demand for free-range chicken, which was estimated from (actual) nationwide data provided by a large UK retailer over a two-year period: Qx = 229,821 – 38,121 Px + 28,826 Py where: Qx = quantity of free-range chicken sold (number of units); Px = average price of free-range chicken (£); and Py = average price of standard non-free-range chicken (£). The average for these variables in these two years are: = 117,735; = £ 5.56; and = 3.46. If marginal cost MC = 2.5 (assume this is constant), calculate the profit-maximising price and the revenue maximising price. In doing so, remember that TRx = Qx · Px, and from the demand equation we obtain (note that is the average value of Py). How do these prices compare with the current price?

The following regression is the demand for free-range chicken, which was estimated from (actual) nationwide data provided by a large UK retailer over a two-year period: Qx = 229,821 – 38,121 Px + 28,826 Py where: Qx = quantity of free-range chicken sold (number of units); Px = average price of free-range chicken (£); and Py = average price of standard non-free-range chicken (£). The average for these variables in these two years are: = 117,735; = £ 5.56; and = 3.46. If marginal cost MC = 2.5 (assume this is constant), calculate the profit-maximising price and the revenue maximising price. In doing so, remember that TRx = Qx · Px, and from the demand equation we obtain (note that is the average value of Py). How do these prices compare with the current price?

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

Chapter4: Estimating Demand

Section: Chapter Questions

Problem 1.1CE

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The following regression is the demand for free-range chicken, which was estimated from (actual) nationwide data provided by a large UK retailer over a two-year period Qx= 229,821 - 38,121 Px + 28,826 Py, where: Qx = quantity of free-range chicken sold (number of units), Px = average price of free-range chicken ; and Py = average price of standard non-free-range chicken(f). The average for these variables in these two years are: Qx= 117,735, Px= f 5.56 and Py = 3.46. Question: Calculate the values of the two price elasticities (own-price elasticity, and cross-price elasticity) and interpret them, also critically justifying whether they make intuitive sense. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
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