All questions utilize the multivariate demand function for Smooth Sailing sailboats in C6 on text page 83, initially with: PX = $9500 PY = $10000 I = $15000 A = $170000 W = 160This function is: Qs = 89830 -40PS +20PX +15PY +2I +.001A +10WWhere Qs=quantity purchased Ps= the price of Smooth Sailing sailboats Px= the price of company X’s sailboat Py= the price of company’s Y’s motorboat I= per capita income in dollars A= dollars spent on advertising W=number of favorable days of weather in the southern region of the United States Use the above to calculate the arc price elasticity of demand between PS = $5000 and PS = $4000. The arc elasticity formula is: Calculate the quantity demanded at each of the above prices and revenue that will result if the quantity is sold (fill in table below).PSQSRevenue$5000 $4000 Marketing suggests lowering the price PS from $5000 to $4000. The size of the elasticity coefficient in #1 should tell you what is likely to happen to revenue. Explain why this is (or is not) a good marketing suggestion from a revenue viewpoint (note: your answer in #1 and the calculations in #2 should be giving the same message). If the implications in #1 and #2 differ, does the difference make sense (or did you make a mistake in #1 or #2)? Calculate the point elasticity of demand for Smooth Sailing sailboats at PS = $5000 (which should make Qs = 261600).Does this elasticity value indicate that Smooth Sailing demand is relatively responsive to changes in the price of these sailboats? Explain why or why not. The formula is: Calculate the point “motorboat” price elasticity of demand when Py = $10000. Use Qs corresponding to PS = $5000. Other variables and their values are given at the top, before question #1. Does this elasticity indicate that the demand for Smooth Sailing’s boats is relatively responsive to changes in the price of Company Y’s motorboats? Explain why or why not. The formula is: Marketing wants an increase in their advertising budget, because “everyone” knows that advertising is a highly effective way to increase demand for a product. Calculate the point advertising elasticity of demand assuming that Ps = $4500 (this should make QS = 281,600) and that the other variables are as given at the top before #1. Does this elasticity coefficient indicate that the demand for Smooth Sailing boats is relatively responsive to changes in advertising expenditures? Explain why or why not. The formula is:

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Answered: All questions utilize the multivariate…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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All questions utilize the multivariate demand function for Smooth Sailing sailboats in C6 on text page 83, initially with:

P_X = $9500 P_Y = $10000 I = $15000 A = $170000 W = 160

This function is:

Qs = 89830 -40P_S +20P_X +15P_Y +2I +.001A +10W

Where Q_{s=quantity purchased}

P_{s= the price of Smooth Sailing sailboats}

P_{x= the price of company X’s sailboat}

P_{y= the price of company’s Y’s motorboat}

_{I= per capita income in dollars}

_{A= dollars spent on advertising}

_{W=number of favorable days of weather in the southern region of the United States}

Use the above to calculate the arc price elasticity of demand between P_S = $5000 and P_S = $4000. The arc elasticity formula is:

Calculate the quantity demanded at each of the above prices and revenue that will result if the quantity is sold (fill in table below).

P_S	Q_S	Revenue
$5000
$4000

Marketing suggests lowering the price P_S from $5000 to $4000. The size of the elasticity coefficient in #1 should tell you what is likely to happen to revenue. Explain why this is (or is not) a good marketing suggestion from a revenue viewpoint (note: your answer in #1 and the calculations in #2 should be giving the same message). If the implications in #1 and #2 differ, does the difference make sense (or did you make a mistake in #1 or #2)?

Calculate the point elasticity of demand for Smooth Sailing sailboats at P_S= $5000 (which should make Q_s= 261600).

Does this elasticity value indicate that Smooth Sailing demand is relatively responsive to changes in the price of these sailboats? Explain why or why not. The formula is:

Calculate the point “motorboat” price elasticity of demand when Py = $10000. Use Qs corresponding to P_S = $5000. Other variables and their values are given at the top, before question #1. Does this elasticity indicate that the demand for Smooth Sailing’s boats is relatively responsive to changes in the price of Company Y’s motorboats? Explain why or why not. The formula is:

Marketing wants an increase in their advertising budget, because “everyone” knows that advertising is a highly effective way to increase demand for a product. Calculate the point advertising elasticity of demand assuming that Ps = $4500 (this should make Q_S = 281,600) and that the other variables are as given at the top before #1. Does this elasticity coefficient indicate that the demand for Smooth Sailing boats is relatively responsive to changes in advertising expenditures? Explain why or why not. The formula is:

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