ABC Sports, a store that sells various types of sports clothing and other sports items, is planningto introduce a new design of Arizona Diamondbacks' baseball caps. A consultant has estimated thedemand curve to bewhere Q is cap sales and P is price.Q=2,000 100P1. How many caps could ABC sell at $6 each?2. How much would the price have to be to sell 1,800 caps?3. Suppose ABC were to use the caps as a promotion. How many caps could ABC give awayfree?4. At what price would no caps be sold?5. Calculate the point price elasticity of demand at a price of $6.

Let's solve each of the given questions step by step using the demand equation:Q=2,000−100P1. How…

Answered: ABC Sports, a store that sells various…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter18: Asymmetric Information

Section: Chapter Questions

Problem 18.3P

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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?
Suppose Sally buys exactly five bars of English toffee each week, regardless of whether the toffee bars are regularly priced at 1 or on sale for 0.50. Based on this information, what is Sallys price elasticity of demand for English toffee in this price range? a. 0 b. 1 c. Infinity d. Cannot be determined.
According to the previous discussion, what factors influence the price elasticity of demand for cigarettes? What other factors not mentioned in the article might influence the price elasticity of demand for cigarettes?
Suppose Erin, the owner-manager of a local hotel projects the following demand for her rooms: a. Calculate the price elasticity of demand between 90 and 110. b. Is the price elasticity of demand between 90 and 110 elastic, unit elastic, or inelastic? c. Will Erins total revenue rise if she increases the price from 90 to 110? d. Calculate the price elasticity of demand between 110 and 130. e. Is the price elasticity of demand between 110 and 130 elastic, unit elastic, or inelastic? f. Will Erins total revenue rise if she increases the price from 110 to 130?
(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?
Income Effects depend on the income elasticity of demand for each good limit you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?
Charles loves Mello Yello and will spend 10 per week on the product no matter what the price. What is his price elasticity of demand for Mello Yello?
Maria has decided always to spend one third of her income on clothing. a. What is her income elasticity of clothing demand? b. What is her price elasticity of clothing demand? c. It Marias tastes change and she decides to spend only one fourth of her income on clothing, how does her demand curve change? What is her income elasticity and price elasticity now?
Evaluate the following statement: Along a downward-sloping linear demand curve, the slope and therefore the elasticity of demand are both 'constant.
If automobiles and gasoline are complements, then their cross-elasticity coefficient is a. strictly greater than 1. b. positive. c. equal to zero. d. negative.
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.
Suppose that your demand schedule for pizza is as follows: a. Use the midpoint method to calculate your price elasticity of demand as the price of pizza increases from 8 to 10 if (i) your income is 20,000 and (ii) your income is 24,000. b. Calculate your income elasticity of demand as your income increases from 20,000 to 24,000 if (i) the price is 12 and (ii) the price is 16.

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