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- 17. How can the elasticity of demand help in pricing strategy? Explain.1. Suppose the demand for towels and supply of towels are given by the below: QD = 100 - 4P QS = P a. Find the equilibrium price and quantity using demand and supply functions above. b. Plot demand and supply curve on the same graph and point out the equilibrium quantity and price. You should draw each graph precisely with intercepts and slopes. c. Solve for the price elasticities of demand and supply at the equilibrium point. Which is more elastic: demand or supply? Simply explain why. d. Suppose there was a demand shock so that at each price 20 more towels are demanded since consumers want more. Plot the new demand curve on the graph that you derive in part (a). Find the new equilibrium price and quantity. (Hint: You may derive a new demand function by adding a constant to find a new equilibrium price and quantity.)which of the following goods would be most inelastic in demand? -Ford -Cars -Toyota -Ford Escape -Dont have enough information in the question we can conclude that the good is ____in demand -elastic -unit elastic -inelastic -perfectly inelastic -perfectly elastic
- Consider the following excerpt: "Steve Cannon, CEO of the AMB Group, Blank's holding company, told ESPN that although food and beverage prices ere 50 percent lower in its new Mercedes-Benz Stadium than the prices in the Georgia Dome the previous year, fans spent 16 percent more." If there has been no change in the demand for concessions at football games, which of the following is true? Oa. Demand for concessions is always elastic b. At the initial prices, demand was inelastic. Oc. The demand curve for concessions slopes upwards Od. Concessions are an inferior goodConsider the following pairs of goods. In each case, which would you expect to have the more elastic demand? Why? e. personal computers or IBM personal computers1. The demand for an auto company's sport utility vehicle is characterized by two types of customers. "Suburban parents" have market demand Q=200-0.67P. "Weekend warriors" have market demand Q -300-1.5P. Horizontal summation gives total demand of Q=200-0.67P+300-1.5P-500-2.17P The inverse demand curve for this is P=230-0.460. a. If the auto company cannot charge different prices to these two groups, what would be the optimal price to charge? At that price, calculate the quantity sold and total profits, if the firm produces the vehicles at constant marginal cost = 100, and fixed cost = 8,000. b. If the firm could separate out the two kinds of customers and has enough monopoly power to charge them different prices, what would be the optimal price and quantity sold in each market segment? What would be total profits? c. Discuss possible realistic ways an auto company might segment the market for such a product.
- Demonstrate the welfare loss of: a. A restriction on output when supply is perfectly elastic. Graph the welfare loss of a quantity restriction equal to a maximum of Q=6. Instructions: Use the 3-point tool 'Loss' to identify the welfare loss. Click and drag each of the endpoints of the shaded area until the triangle highlights the desired region. Price 18- 16- 14- 12- 10 D 18 20 4 LossSuppose a firm sells two goods, Good A and Good B. Use the following information to answer questions that follow:Profit maximising price of Good A = R200Profit maximising price of Good B = R75MC at Q* of Good A = R120Total revenue of Good A = R26000Total revenue of Good B = R24000Rothschild index of Good B = 0.4Price elasticity of the market demand for Good B = -2 2.1. Calculate each of the following:Ed of Good A = ____________Ed of Good B =__________MC at Q* of Good B = R___________ 2.2 Suppose that the firm noticed that when it increased the price of Good A from R200 to R300, the sales of Good B decreased from 1000 to 600 units. Calculate and classify the cross-price elasticity of demand between Good A and Good B.Ec =____________Good A and Good B are classified as (substitutes/compliments) 2.3. Use the elasticity coefficient calculated above and the information provided, to calculate by how much the firm’s total combined revenue will change if it decreases the price of Good A by…using the purple points (diamond symbol). Finally, plot the market demand for scented candles Using the blue points( Note: Line segments will automatically connect the points. Remember to plot from left to right. 12 10 Nick's Demand Rosa's Demand Market Demand 18 24 32 40 QUANTITY (Candles) PRICE (Dollars per candle)
