Compute to three decimal places. Initial values are: PX = $9500 PY = $10000 I = $15000 A = $170000 W = 160 This function is: Qs = 89830 -40PS +20PX +15PY +2I +.001A +10W 1.(a) Use the above to calculate the arc price elasticity of demand between PS = $8000 decreasing to PS = $7000. The arc elasticity formula is: (b). Judging from the computation in (a), do you expect the revenue resulting from the decrease in price from $8000 to $7000 to increase, remain the same or decrease. (Hint: see the table on page 65 of Truett). Explain your choice
ELASTICITY EXERCISE
Name _____________________________11) Due ____________ Please show work in detail.
All questions utilize the multivariate demand function for Smooth Sailing sailboats in C6 on text page 83. Compute to three decimal places.
Initial values are: PX = $9500 PY = $10000 I = $15000 A = $170000 W = 160
This function is: Qs = 89830 -40PS +20PX +15PY +2I +.001A +10W
1.(a) Use the above to calculate the arc price
(b). Judging from the computation in (a), do you expect the revenue resulting from the decrease in price from $8000 to $7000 to increase, remain the same or decrease. (Hint: see the table on page 65 of Truett). Explain your choice.
2.(a). Calculate the point elasticity of demand for Smooth Sailing sailboats at PS = $8000 (which should make Qs = 141600). The formula is:
2.(b). 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.
3.(a). Calculate the point “motorboat” price elasticity of demand when Py = $10000. Use Qs corresponding to PS = $7500 (which should make Qs = 161600). Other variables and their values are given at the top, before question #1. The formula is:
3(b). 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.
4.(a).. Calculate the point cross-price elasticity of demand between Qs and Px, assuming Px = $9500. Use Ps = $8000 (which should make QS = 141,600) and that the other variables are as given at the top before #1. The formula is:
4.(b). Does this elasticity coefficient indicate that the demand for Smooth Sailing boats is relatively responsive to changes in the price of Px? Explain why or why not.
5.(a). Advertising is thought to be an important determinant of sailboat sales. Calculate the point elasticity of demand for Smooth Sailing boats with respect to changes in advertising expenditures, assuming Ps = $7000 (thus Qs = 181600 boats). Let A = $170000. The other variables and their values are as given at the top before #1. The formula is:
5, Does this elasticity coefficient indicate that the demand for Smooth Sailing boats is relatively responsive to changes in advertising expenditurese? Explain why or why not.
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