5.21. MCL. MCL produces a small toy drone. Based on historical data, demand at two different price levels is estimated as follows: 10, demand is given by q = 35. When p = 11, demand is = = When p given by q = 28. (a) Determine the value of price elasticity of demand. (b) Suppose that unit cost of production is c = 2 (and does not vary with output level). Assuming that the price elasticity of demand is constant, determine the profit-maximizing price. (c) MCL is considering exporting to market M. Suppose that the transportation cost is negligible, so that the cost of serving market M is the same as the cost of serving the domestic market. The price elasticity of demand in market M is estimated to be -3. Determine the profit-maximizing export price.

5.21. MCL. MCL produces a small toy drone. Based on historical data, demand at two different price levels is estimated as follows: 10, demand is given by q = 35. When p = 11, demand is = = When p given by q = 28. (a) Determine the value of price elasticity of demand. (b) Suppose that unit cost of production is c = 2 (and does not vary with output level). Assuming that the price elasticity of demand is constant, determine the profit-maximizing price. (c) MCL is considering exporting to market M. Suppose that the transportation cost is negligible, so that the cost of serving market M is the same as the cost of serving the domestic market. The price elasticity of demand in market M is estimated to be -3. Determine the profit-maximizing export price.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

5.21 explain

15.21. MCL. MCL produces a small toy drone. Based on historical
data, demand at two different price levels is estimated as follows:
When p = 10, demand is given by q = 35. When p = 11, demand is
given by q = 28.
(a) Determine the value of price elasticity of demand.
(b) Suppose that unit cost of production is c = 2 (and does
not vary with output level). Assuming that the price
elasticity of demand is constant, determine the
profit-maximizing price.
(c) MCL is considering exporting to market M. Suppose that
the transportation cost is negligible, so that the cost of
serving market M is the same as the cost of serving the
domestic market. The price elasticity of demand in market
M is estimated to be −3. Determine the profit-maximizing
export price.
(d) Assuming that MCL sets the domestic price so as to
maximize profits, determine the domestic market margin
(in percentage terms).

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