1.2. Suppose the market demand equation for Cold Stone Creamery's Ice-cream (CS) in UAE is given by: 3D 2000 — 40ОРCS + 0.51 + 150РBR while the UAE market supply equation for Cold Stone Creamery's Ice-cream is given by: = -516 + 300P cs – 60W where Qcs is quantity of text-books, Pcs is the price of Cold Stone Creamery's Ice-cream, I is household income, W is wage rate paid to Cold Stone Creamery's workers, and PBR the price of Baskin-Robbins's Ice-cream. Assume that: I = AED2,000; W = AED20; РBR = AED2. a. Calculate the equilibrium price and quantity in this market. b. What is the Price elasticity of demand for Cold Stone Creamery's Ice-cream at the equilibrium price and quantity? Hint: Use your answer in "a". c. Is demand for Cold Stone Creamery's Ice-cream elastic or inelastic? Why? Hint: Use your answer in “b". d. Given your answer in part c and the aim is to maximize profit, would you recommend Cold Stone Creamery to increase its price? Why? e. Are Cold Stone Creamery's Ice-cream and Baskin-Robbins's Ice-cream substitutes or complements? Why? Hint: Use the demand equation (QEs) to provide your answer.
1.2. Suppose the market demand equation for Cold Stone Creamery's Ice-cream (CS) in UAE is given by: 3D 2000 — 40ОРCS + 0.51 + 150РBR while the UAE market supply equation for Cold Stone Creamery's Ice-cream is given by: = -516 + 300P cs – 60W where Qcs is quantity of text-books, Pcs is the price of Cold Stone Creamery's Ice-cream, I is household income, W is wage rate paid to Cold Stone Creamery's workers, and PBR the price of Baskin-Robbins's Ice-cream. Assume that: I = AED2,000; W = AED20; РBR = AED2. a. Calculate the equilibrium price and quantity in this market. b. What is the Price elasticity of demand for Cold Stone Creamery's Ice-cream at the equilibrium price and quantity? Hint: Use your answer in "a". c. Is demand for Cold Stone Creamery's Ice-cream elastic or inelastic? Why? Hint: Use your answer in “b". d. Given your answer in part c and the aim is to maximize profit, would you recommend Cold Stone Creamery to increase its price? Why? e. Are Cold Stone Creamery's Ice-cream and Baskin-Robbins's Ice-cream substitutes or complements? Why? Hint: Use the demand equation (QEs) to provide your answer.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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