1. Retail Promotion Programs Successful retail promotion programs have the capacity to generate additional producer surplus, but it depends on the size of the relative shifts in demand and supply. Please sketch out a supply and demand figure for RTE breakfast cereal sold in retail markets that adopt a promotion campaign; this program increases demand and also leads to an increase in advertising costs that is paid for by the retailer. Now assume (and label your figure) with the following: the initial equilibrium quantity was 100,000 boxes, the quantity with the promotion in place is 105,000 boxes, the initial price was $10 per box, the price with the promotion in place is $10.15 per box, and initial fixed costs were $2 per box.

1. Retail Promotion Programs Successful retail promotion programs have the capacity to generate additional producer surplus, but it depends on the size of the relative shifts in demand and supply. Please sketch out a supply and demand figure for RTE breakfast cereal sold in retail markets that adopt a promotion campaign; this program increases demand and also leads to an increase in advertising costs that is paid for by the retailer. Now assume (and label your figure) with the following: the initial equilibrium quantity was 100,000 boxes, the quantity with the promotion in place is 105,000 boxes, the initial price was $10 per box, the price with the promotion in place is $10.15 per box, and initial fixed costs were $2 per box.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...

See similar textbooks

Similar questions

Using the midpoint formula for calculating the elasticity of supply, if the price of a good rose from $95 to $105, what would be the elasticity of supply if the quantity supplied changed from a. 38 to 42? b. 78 to 82? c. 54 to 66?
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?
Explain why using the midpoint formula for calculating the elasticity of demand gives the same result whether price increases or decreases, but using the initial price and quantity instead of the average does not.
What is the difference between the demand and the quantity demanded of a product, say milk? Explain in words and show the difference on a graph with a demand curve for milk.
(Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of Si per unit. A reduction in price to $0.20 results in an increase in quantity demanded to 70 units. Using the midpoint formula, show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in the price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?
What does a downward-sloping demand curve mean about how buyers in a market will react to a higher price?
Can you think of an industry (or product) with near infinite elasticity of supply in the short term? That is, what is an industry that could increase Qs almost without limit in response to an increase in the price?