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
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Chapter 8, Problem 8MC
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a. Why do suppliers want to create more inelastic demand relationships in the products that they sell?
b. When the price of cellphone charges rises from $480 to $600 a month, the quantity demanded decreases from 204 million to 196 million subscribers. Calculate the price elasticity of demand for cellphone charges. Is the demand for elastic or inelastic? Would the demand for Flow charges be more elastic or less elastic than the demand for overall cellphone charges? Why?
a. Why do suppliers want to create more inelastic demand relationships in the products that they sell?
b. When the price of cellphone charges rises from $480 to $600 a month, the quantity demanded decreases from 204 million to 196 million subscribers. Calculate the price elasticity of demand for cellphone charges. Is the demand for elastic or inelastic? Would the demand for Flow charges be more elastic or less elastic than the demand for overall cellphone charges? Why?
c. When the price of rice falls from $100 to $80, the quantity demanded of rice increases from 10 to 25, the quantity demanded of potatoes decreases from 20 to 15, and the quantity demanded of chicken increases from 18 to 35.
i. Calculate the cross elasticity of demand for potatoes with respect to rice.ii. Calculate the cross elasticity of demand for chicken with respect to rice.iii. Of what use are these two cross elasticities of demand to the owner of abusiness that sells potatoes and chicken?
Grilled cheese sandwiches are $4, and the quantity demanded is 60. When the price falls to $3/sandwich, the quantity demanded rises to 80. What is the price elasticity of grilled cheese sandwiches?
Widgets are $3, and the quantity demanded is 200. When the price of widgets rises to $5, the quantity demanded falls to 100. What is the price elasticity of demand for widgets?
Coffee is $1 per cup, and the quantity demanded is 500. The price of coffee rises to $1.25 per cup, and the quantity demanded falls to 400. What is the price elasticity of demand for cups of coffee?
Chapter 8 Solutions
Managerial Economics: A Problem Solving Approach
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Similar questions
- 1. The equation for a demand curve is P = 45 - 3Q. What is the elasticity in moving from a quantity of 4 to a quantity of 5? 2. The equation for a demand curve is P = 4/Q. What is the elasticity of demand as the price falls from 10 to 8? What is the elasticity of demand as the price falls from 18 to 16? Would you expect these answers to be the same?arrow_forwardThe following shows the monthly demand for oranges in my neighborhood. What is the price elasticity of demand when price changes from $0.50 to $1.00? Price per pound Quantity Demanded $0 50 $0.50 45 $1.00 40 $1.50 35 $2.00 30 $2.50 25 Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a -9 -1/9 -1/4 d. -4arrow_forward10 True or False: Suppose you are advising the Egg Farmers of Canada on changes in the egg market. Suppose the current price is $3.00 per dozen eggs and the quantity demanded is 2.5 million dozens of egg per day. Suppose price elasticity of demand is constant at 0.8. You are considering reducing the supply, so that the price rises to $3.5 per dozen. Total expenditure on eggs by consumers will rise. Explain your answer carefully.arrow_forward
- Your firm receives revenue of $40MM per year from Product A and $90MM per year from Product B. The own- price elasticity of demand for Product A is -1.5. The cross-price elasticity of demand between Product A and Product B is -1.8. Suppose you increase the price of Product A by two percent: a. How much will Product A’s revenue change? b. How much will Product B’s revenue change?arrow_forwardSuppose you are given a task for analysis the market elasticity for Sport Bike. You found that when the market price of bike is $250 the market demand is 800 bikes, whereas the market supply is 450 bikes. Yet, when the price rises to $280 the market demand is lower to 550 bikes but the market supply is up to 650 bikes. Your tasks are: a) What is price elasticity of the demand for Sport Bike? b) What is price elasticity of the supply for Sport Bike?arrow_forwardSuppose you learned that the price elasticity of demand for wheat is 0.7 between the current price for wheat and a price 2 higher per bushel. Do you think that farmers collectively would try to reduce the supply of wheat and drive the price up 2 higher per bushel? Explain your answer. Assuming that they would try to reduce supply, what problems might they have in actually doing so?arrow_forward
- A life-saving medicine without any close substitutes will tend to have a. a small elasticity of demand. b. a large elasticity of demand. c. a small elasticity of supply. d. a large elasticity of supply.arrow_forwardinstead of a decrease and it was an increase instead of a decrease; would that mean that the demand would increase and will result in a increase in demand for electric guitars?arrow_forwardGraph the following In the market for smartphones, the price elasticity of supply is +0.8, and the price elasticity of demand is -1.2. At equilibrium, price is $800 and quantity is 400000. (1a) Assuming supply and demand are linear, reconstruct and draw the supply and demand curves. Label the intercepts. (1b) To help consumers and phone-makers, the government proposes to subsidize smartphones by $80 each. What are PB and PS after the subsidy? What is the new equilibrium quantity? Illustrate them on the same graph. (c) Calculate the change in consumer surplus, producer surplus, government expenditure, and deadweight loss and identify them on the graph.arrow_forward
- 1. Your younger brother needs $600 to buy a new computer. He has opened a sandwich stand to make the money he needs. Your father is paying for all of the ingredients. He currently is charging $2 per sandwich, but he wants to adjust his price to earn the $600 faster. If you know that the demand for sandwich is elastic, what is your advice to him? Explain.arrow_forwardPlease Answer The quantity of apples supplied increased from 40 tons/week to 60 tons/week when the price of apples increased from $4/ton to $5/ton. What is the elasticity of supply called for apples over this price range? Select one: a. Perfectly Inelastic b. Unit Elastic c. Elastic d. Inelasticarrow_forwardIf the price of a hamburger increases from $8 to $10, the price elasticity of demand equals __________. If the price of a hamburger increases from $6 to $8, the price elasticity of demand equals __________. If the price of a hamburger decreases from $6 to $4, the price elasticity of demand equals __________.arrow_forward
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