Consider the following values of the price elasticity of demand: | Cigarettes U.S. luxury cars in the U.S. Foreign luxury cars in the U.S. 0.5 1.9 2.8 Based on these values, provide an estimate of the impact on revenues of a 10% increase in the price of each of the above three products. (Hint: You are asked whether the revenues will increase or decrease and by what percentage. Mathematically, you want to calculate (AR/R) / (Ap/p), or equivalently, (dR/dp):(p/R). Also, keep in mind that R(p) =p·Q(p). Once you carry out the calculation, the answers are straightforward.)

Consider the following values of the price elasticity of demand: | Cigarettes U.S. luxury cars in the U.S. Foreign luxury cars in the U.S. 0.5 1.9 2.8 Based on these values, provide an estimate of the impact on revenues of a 10% increase in the price of each of the above three products. (Hint: You are asked whether the revenues will increase or decrease and by what percentage. Mathematically, you want to calculate (AR/R) / (Ap/p), or equivalently, (dR/dp):(p/R). Also, keep in mind that R(p) =p·Q(p). Once you carry out the calculation, the answers are straightforward.)

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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1. Consider the following values of the price elasticity of demand: |
Cigarettes
U.S. luxury cars in the U.S.
Foreign luxury cars in the U.S.
0.5
1.9
2.8
Based on these values, provide an estimate of the impact on revenues of a
10% increase in the price of each of the above three products.
(Hint: You are asked whether the revenues will increase or decrease and by
what percentage. Mathematically, you want to calculate (AR/R) / (Ap/p), or
equivalently, (dR/dp):(p/R). Also, keep in mind that R(p) = p-Q(p). Once
you carry out the calculation, the answers are straightforward.)
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