EBK PRINCIPLES OF MICROECONOMICS (SECON
2nd Edition
ISBN: 9780393616149
Author: Mateer
Publisher: W.W.NORTON+CO. (CC)
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Chapter 10, Problem 9SP
To determine
Identify the impact of price effect and output effect on an increase in the bus service charge.
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BigSwaba Corp produces virus home test kits which it sells in the market. It
pays a marketing company to post Instagram images of people using the kits
in the comfort of their own homes.
The demand for the kits and cost of production are as follows:
1
1
Cost: C=200+=q´ +m
1/2
Demand: p=48+m/:
Where m is the firm's marketing expenditure.
Assume the CEO of BigSwaba asks you to help the company maximize profit.
а.
How many kits should the company sell and at what price?
b.
What is the demand elasticity at this output level?
C.
What should their marketing budget be?
Assume the CEO of BigSwaba realizes her bonus will determined not by
profits, but by the firm's revenue. Maintaining the same marketing budget as
in part a:
d.
What quantity should the firm produce to maximize revenue?
A minor league baseball team raised the average price of its tickets from $8 to $8.90 and found that average attendance at its games dropped from 5,200 to 4,700. Using the arc elasticity of demand formula, the
price elasticity of demand for tickets is (Express your answer as a real number rounded to two decimal places. Don't forget the negative sign.)
Imagine you work as an economist for a particular airline (A). Your job entails estimating the passenger demand for airline travel provided by A. Accordingly, you estimate the following:
Price elasticity of demand for A’s service = 3
Cross elasticity of demand for A’s service (with respect to airline B’s price) = 2
Income elasticity of demand for A’s service = 1
Making sure to show all of your work, if consumer income falls by 5% (due to a recession), and at the same time airline B lowers its price by 10%, all else equal, what would you specifically recommend A due to its price to maintain its quantity of passengers (i.e., lower or raise its price and by what percent)? Hint: Elasticities are ratios of percentage changes.
Chapter 10 Solutions
EBK PRINCIPLES OF MICROECONOMICS (SECON
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- A minor league baseball team raised the average price of its tickets from $8 to $8.50 and found that average attendance at its games dropped from 5,200 to 4,800. Using the arc elasticity of demand formula, the price elasticity of demand for tickets is Don't forget the negative sign.) (Express your answer as a real number rounded to two decimal places. The demand for tickets is thereforearrow_forwardShell has over 13,000 gas stations in the United States. In addition to gasoline, the gas stations also sell convenience items, such as snacks, non-alcoholic beverages, wine, beer, and hot food. Suppose you work for a gas station and your boss asks you to develop a pricing strategy for bottled local wine. The demand function is ? = 100 – 4?, where ? is the monthly quantity demanded of the bottled wine and ? is the price of the bottled wine. The marginal cost per bottle of wine is $5. Complete the following tasks: 1) (Calculating) In the worksheet “Q2 Calculations” of the provided Excel file, enter formulas in columns B-D to calculate Q (quantity demanded), MC (marginal cost), and MR (marginal revenue). Please round your results to one decimal place. Note that the inverse demand function is ? = 25 − 0.25? and that the MR function can be derived from the inverse demand function using the formula introduced in Module 5. You may find it helpful to review the Excel file for Chapter 11.arrow_forwardThe manager of the Sell-Rite drug store accidentally mismarked a shipment of 20-pound bags of charcoal at $4.38 instead of the regular price of $5.18. At the end of a week, the store's inventory of 200 bags of charcoal was completely sold out. The store normally sells an average of 150 bags per week. (a)What is the store's arc elasticity of demand for charcoal? (b)Give an economic interpretation of the numerical value obtained in part (a)arrow_forward
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