Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 7MC
To determine
Price elasticity.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
What can you conclude about the price elasticity of demand in each of the following
statements?
a. "The pizza delivery business in this town is very competitive. I'd lose half my customers if I
raised the price by as little as 10%."
b. "I owned both of the two Jerry Garcia autographed lithographs in existence. I sold one on
eBay for a high price. But when I sold the second one, the price dropped by 80%."
c. "My economics professor has chosen to use the Krugman/Wells textbook for this class. I have
no choice but to buy this book."
In the market for alcoholic beverages, a business called Drive-thru Bottle Shop offers a variety of
different bottled wines to their customers. They stock many brands, some being very well-known, with
others less well known.
Answer the following questions:a. If a wine has significant brand recognition and customer loyalty, then
the point price elasticity of demand at a given price for this wine would
elastic than the point price elasticity
be
of demand of a similar wine where the wine maker has little brand recognition and customer loyal,
ceteris paribus. Type L for Less, M for More or E for Equally.
b. The demand for a particular wine sees customers purchase 6,000 bottles of wine when the price is
$7.99 per bottle, and only 5,000 bottles when the price was increased to $8.49 by the Drive-thru
Bottle Shop management. What is the price elasticity of demand using the mid-point formula?
Answer to the nearest two decimal places.
C. Assume the Drive-thru Bottle Shop is trying to maximise…
Suppose the Daily Graphic Newspaper estimates that if it raises the price of its newspaper from
Ghc1.00 to Ghc1.50 then the number of subscribers will fall from 50,000 to 40,000.
a. What is the price elasticity of demand for the Daily Newspaper when elasticity is
calculated using the midpoint method?
b. What is the advantage of using the midpoint method?
c. If the Daily Newspaper's only concern is to maximize total revenue, should it raise the
price of a newspaper from Ghc1.00 to Ghc1.50? Why or why not?
Chapter 14 Solutions
Managerial Economics: A Problem Solving Approach
Knowledge Booster
Similar questions
- The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decayfigh ter, reduced the price of its electric toothbrush from $35 to $30. As a result, Stopde cays sales declined by 1,500 units per month. What is the arc cross elasticity of demand between Stopdecays toothbrush and Decayfighters toothbrush? What does this indicate about the relationship between the two products? If Stopdecay knows that the arc price elasticity of demand for its toothbrush is 1.5, what price would Stopdecay have to charge to sell the same number of units as it did before the Decayfighter price cut? Assume that Decayfighter holds the price of its toothbrush constant at $30. What is Stopdecays average monthly total revenue from the sale of electric toothbrushes before and after the price change determined in part (b)? Is the result in part (c) necessarily desirable? What other factors would have to be taken into consideration?arrow_forward(Categories of Price Elasticity of Demand) For each of the following absolute values of price elasticity of demand, indicate whether demand is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic. In addition, determine what would happen to total revenue if a firm raised its price in each elasticity range identified. Absolut Value Elasticity Effect of Price Increase a b c darrow_forwardIn 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?arrow_forward
- The price elasticity of the demand for gasoline is -0.02. The price elasticity of demand for gasoline at Joe’s 66 station is -1.2. Explain what might account for the different elasticities.arrow_forwardIf the midpoint on a straight-line demand curve is at a price of $7, what can we say about the elasticity of demand for a price change from $12 to $10? What about from $6 to $4?arrow_forward1. The sylvan corporation has estimated the pice elasticity of demand for synthetic wood sorrel to be -0.25. a. If the price of sylvan's wood sorrel increases by 10% what will happen to the quantity demanded of wood hewers. b. What will happen to sylvan revenue as a result of price increase?arrow_forward
- Suppose a local supermarket runs a discount campaign on the sales of shampoos using discount coupons - any customer who shows a discount coupon will be offered an X% discount on the original retail price. a. Suppose the supermarket estimates that coupon users have a demand elasticity of -4 while non-coupon users will have a demand elasticity of -2.5. What should be the value for “X"? Explain with calculations. Be step-by- step. (Hint: Take the ratio between the prices for coupon and non-coupon users.) b. Discuss TWO practical limitations for the supermarket to conduct this discount campaignarrow_forwardSnooki, a new marketing intern, was a little scatterbrained during the first meeting with her manager, when she made four statements about pricing. Which one of her four statements about pricing was correct? a. A product with an elastic demand is likely to face little competition. b. An EDLP retailer offers many price promotions. c. A product with an elasticity of demand of -0.7 will enjoy increases in revenue when prices are cut. d. Cost-plus pricing is not the perfect pricing strategy because the pricing method ignores customers’ willingness to pay and competitors’ pricing strategy.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning