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 4, Problem 14PAA
To determine
The graphical representation of impact of a 25% decline in the price of business travel on company’s budget set.
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During the past major recession, upscale hotels in the United States recently cut their prices by 25 percent in an effort to bolster dwindling occupancy rates among business travelers. A survey performed by a major research organization indicated that businesses were becoming wary of bad economic conditions and began resorting to electronic media, such as the Internet and the telephone, to transact business. Assume a company’s budget permits it to spend $6,000 per month on either business travel or electronic media to transact business. Graphically illustrate how a 25 percent decline in the price of business travel would impact this company’s budget set if the price of business travel was initially $1,200 per trip and the price of electronic media was $600 per hour. Suppose that, after the price of business travel drops, the company issues a report indicating that its marginal rate of substitution between electronic media and business travel is −1. Is the company allocating resources…
Chapter 4 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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- During the past major recession, upscale hotels in the United States recently cut their prices by 25 percent in an effort to bolster dwindling occupancy rates among business travelers. A survey performed by a major research organization indicated that businesses were becoming wary of bad economic conditions and began resorting to electronic media, such as the Internet and the telephone, to transact business. Assume a company’s budget permits it to spend $6,000 per month on either business travel or electronic1 media to transact business. Graphically illustrate how a 25 percent decline in the price of business travel would impact this company’s budget set if the price of business travel was initially $1,200 per trip and the price of electronic media was $600 per hour. Suppose that, after the price of business travel drops, the company issues a report indicating that its marginal rate of substitution between electronic media and business travel is −1. Is the company allocating resources…arrow_forwardDuring the past major recession, upscale hotels in the United States recently cut their prices by 25 percent in an effort to bolster dwindling occupancy rates among business travelers. A survey performed by a major research organization indicated that businesses were becoming wary of bad economic conditions and began resorting to electronic media, such as the Internet and the telephone, to transact business. Assume a company’s budget permits it to spend $6,000 per month on either business travel or electronic1 media to transact business. Graphically illustrate how a 25 percent decline in the price of business travel would impact this company’s budget set if the price of business travel was initially $1,200 per trip and the price of electronic media was $600 per hour. Suppose that, after the price of business travel drops, the company issues a report indicating that its marginal rate of substitution between electronic media and business travel is −1. Is the company allocating resources…arrow_forwardHomework (Ch 05) On the following graph, use the green point (triangle symbol) to plot the weekly total revenue when the market price is $50, $75, $100, $125, $150, $175, and $200 per scooter. TOTAL REVENUE (Dollars) 7830 7290 6750 8210 5670 5130 4590 4050 3510 2970 0 25 50 75 100 125 150 175 200 225 250 275 300 325 PRICE (Dollars per scooter) Total Revenue gage Learning According to the midpoint method, the price elasticity of demand between points A and B is approximately Suppose the price of scooters is currently $25 per scooter, shown as point B on the initial graph. Because the demand between points A and B is a $25-per-scooter increase in price will lead to in total revenue per week. In general, in order for a price increase to cause a decrease in total revenue, demand must bearrow_forward
- Daffy’s is a pet care company that recently increased the average price of its services by 5%. As a result, the number of customers dropped by 4%. How will this 5% increase of the average price of services impact total revenue at Daffy’s?arrow_forwardBecause of the housing bubble, many houses are now selling for much less than their selling price just two to three years ago. There is evidence that homeowners with virtually identical houses tend to ask for more if they paid more for the house. What fallacy are they making?arrow_forwardProvide an example of a "real world" application of the theory of the consumer and then the theory of the firm. Include the url for your examples and explain how the theory of the consumer and theory of the firm is found in the examples. [Word count 100-200 for both combined.]arrow_forward
- QUESTION 2 Eve notices that ordering through HotCups (a specialty coffee delivery service where price fluctuates with supply and demand) to her bank's office in the city normally costs $6 Monday to Friday (x1 rate). But on Saturday mornings, as there are many tired people who want to make the most of their weekend, the HotCups delivery costs up to $18 (x3 rate). Which of the following statements are true: A Ceteris paribus, there should be less HotCups delivery drivers around on a Saturday morning due to the increased prices according to the law of supply. Ceteris paribus, Eve is more likely to walk to a local cafe for coffee on a Saturday morning. H Ceteris paribus, a HotCups delivery driver's working hours (individual quantity supplied) should increase on a Saturday morning according to the law of supply. Ceteris paribus, a HotCups delivery driver will work more on a Tuesday morning rather than a Saturday morning because of the higher rates, according to the law of supply.arrow_forwardType the correct answer in the box. Spell all words correctly. Vivian conducted market research on her company’s products. She found that after the company raised the price of its product by $1.50, the demand in the uptown region remained the same with only minor fluctuations. However, she found that the demand in the downtown region dropped by 20 percent after the price change. How should Vivian take these demands into consideration? In a situation where demand differs in different areas, Vivian should consider the demand.arrow_forwardRead the extract below and answer ALL the questions that follow: Online shopping attracted a great deal of attention from researchers over the past two decades. The advent of the Internet and other disruptive technologies has had a fundamental effect on how consumers buy goods and services today. People can now order groceries online to be delivered to their homes, but this is still a relatively new concept in the South African market. Consumers remain sceptical about this way of shopping. Many researchers have studied consumer behaviour of online shopping and the conceptual factors influencing their intention to purchase groceries online. However, the influence of personality traits on consumer willingness to adopt online grocery shopping is largely under researched, especially in South Africa. QUESTION 1 (25 Marks) The extract above briefly highlight the digital age that is upon us, and as such companies have to adjust to participate in the global and digital markets. Using relevant…arrow_forward
- The market for organic and locally sourced foods has skyrocketed over the past decade as consumers focus on improving their eating habits. However, severe droughts have caused organic food prices to rise significantly, forcing many consumers to shop at conventional supermarkets (which are increasingly adding organic food options) instead of organic food markets such as Whole Foods. In response, companies such as Whole Foods have begun offering more nonorganic options on their store shelves in order to provide their consumers with more affordable options. Based on this response, what did companies such as Whole Foods realize about the elasticity of demand for organic foods that caused them to lower their prices by changing the type of foods they sell?arrow_forwardEver since the Indian government opened up its telecom industry to competition in 1999, Indian consumers have seen their phone bills shrink. In 2000, the charge for making a call with a cellular phone was 16 rupees per minute (about 27 U.S. cents) By 2011 that rate had fallen to 1 paisa per second-roughly 1 cent per minute. In the same time period, the number of mobile subscribers skyrocketed from 2 million to 584 million. Today, there are 930 million cellular subscribers, making India the world's second largest mobile phone market. How did all this come about? India opened the telecom market to new entrants,reduced license fees, and lowered tariffs, encouraging dozens of firms to complete for India telephone customers. (A) by what percentage did the price of a phone minute decline after competition emerged? (B) By what percentage did the quantity demanded increase? (C) what was the apparent price elasticity of demand?arrow_forwardStarting a gluten free and nut free restaurant has been a lifelong dream of Sydney Quintero, since he realized his dietary restrictions as a teenager. Now, that Sydney has graduated with his business degree, he is pursuing his dream. He has researched geographic locations around his state and selected three different cities, Fort Alden, Central City and Roseville, as possibilities for his flagship restaurant. The market for gluten/nut free products often changes due to health awareness, current trends and general demographic changes in population. Sydney's marketing research has given him some estimates for the different locations as described in the decision table below. Alternatives Fort Alden Central City Roseville Answer Decision Table Strong Market 75,000 68,000 105,000 State of Nature Fair Market Step 1 of 2: Using the maximax strategy, where would Sydney decide to start his restaurant? O Roseville O Fort Alden 48,500 52,000 76,000 O Central City Poor Market 25,000 27,000 30,000…arrow_forward
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