1. Retail Promotion Programs Successful retail promotion programs have the capacity to generate additional producer surplus, but it depends en the size of the relative shifts in demand and supply. Please sketch out a supply and demand figure for RTE breakfast cereal sold in retail markets that adopt a promotion campaign; this program increases demand and also leads to an increase in advertising cests that is paid for by the retailer. Now assume (and label your figure) with the following: the initial equilibrium quantity was 100,000 boxes, the quantity with the promotion in place is 105,000 boxes, the initial price was $10 per box, the price with the promotion in place is S10.15 per box, and initial fixed costs were $2 per box. Would the promotion efforts be worthwhile to retailers if: a) b) c) The promotion was funded by a $0.20/box fee? A S0.50 fee/box? A S0.60 fee/box?

1. Retail Promotion Programs Successful retail promotion programs have the capacity to generate additional producer surplus, but it depends en the size of the relative shifts in demand and supply. Please sketch out a supply and demand figure for RTE breakfast cereal sold in retail markets that adopt a promotion campaign; this program increases demand and also leads to an increase in advertising cests that is paid for by the retailer. Now assume (and label your figure) with the following: the initial equilibrium quantity was 100,000 boxes, the quantity with the promotion in place is 105,000 boxes, the initial price was $10 per box, the price with the promotion in place is S10.15 per box, and initial fixed costs were $2 per box. Would the promotion efforts be worthwhile to retailers if: a) b) c) The promotion was funded by a $0.20/box fee? A S0.50 fee/box? A S0.60 fee/box?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A. Using the mid point equation, calculate the price elasticity of demand for the market demand curve for a change from the equilibrium price of $4.00( show the equation and all calculations) is the demand curve elastic or I elastic for this price change? What would happen to the total market revenue if the price changed to $4.00 b. If a new firm(competitor) enters this market so that 6adsitional units are supplied at each price above $0, what would happen to the equilibrium price and quantity and the total market revenue of the market. Add a new market supply curve to your original graph and indicate the new equilibrium price and quantity on the appropriate axes.
4. The following problems are based on the demand and supply schedule for gum listed below. All quantities are in millions of packs of gum per month. Quantity Demanded 180 Price |Quantity Supplied $0.20 30 60 90 $030 160 $0.40 140 $0.50 120 120 $0.60 100 140 $0.70 80 160 $0.80 60 180 a) Suppose that the quantity demanded rises by 40 million packs of gum per month at each price. b) Draw the initial demand and supply curves as given by the table above. Call this graph Graph 1. Label this demand curve D1, and this supply curve S1. Draw the new demand curve given by this change, labeling it D2. Show the new equilibrium price and output, labeling this point A. Suppose that the quantity supplied rises by 50 million packs per month at each price, while the quantities demanded retain their D1 values. On a new graph (labeled as Graph 2), draw D1, S1, and the new supply curve, S2. Show the new equilibrium output and price, labeling this point C.
1. Jeff Jones at Ice ‘n Carry ('InC') Coolers reduced the price of InC coolers by $10 from the usual $40. Weekly sales increased from 10 to 20 InC Coolers per week. a. What is the arc price elasticity of demand? b. Jeff is considering a further price reduction. What would be the effect of the reduction on revenues? How about profits? Revenues: Profits: Increase/ Decrease / Can't tell Increase/ Decrease / Can't tell
1. Consider the market for Widgets. Suppose that the equation for the supply curve is: Qs = 1,000P – 10,000, and the equation for the demand curve is: Qa = 50,000 – 2,000P. It turns out that the equilibrium price is 20, while the equilibrium quantity is 10,000. a. Use a 10% increase in quantity to estimate (crudely) both the elasticity of supply and the elasticity of demand at the equilibrium quantity. i) Categorize supply and demand as elastic or inelastic at the equilibrium quantity. ii) Is supply or demand relatively more inelastic at the equilibrium quantity? b. If the government enacted a tax of $3, the loss in consumer surplus would be 9,000, while the loss in producer surplus would be 18,000 (see Homework 2, question #2.) Compare this information to your answer to part (a). Explain. c. Now estimate (crudely) the elasticity of demand at a quantity of 11,000 by decreasing quantity by 1,000. Compare your estimate of elasticity to the estimate in part (a). Comment.
i. Explain the values of price and income elasticity of demand for Fresh meat, foreign travel, and Bread, Beer, petrol and consumer durables. ii. With reference to the price elasticity values comment on their implications for pricing policies in the industries concerned.
8. Refer to Figure 2 below. Using the midpoint method, what is the price elasticity of supply between point B and point C? 1.44 1.29 0.96 0.69 a. b. C. d. 9. Refer to Figure 2 below. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would a. b. C. d. a. b. increase. decrease. remain unchanged. The effect on total revenue cannot be determined from the given information. C. d. PRICE 10 9 8 7 6 5 4 3 2 1 Figure 2 Supply 10. Which of the following statements is valid when the market supply curve is vertical? Market quantity supplied does not change when the price changes. Supply is perfectly elastic. An increase in market demand will increase the equilibrium quantity. An increase in market demand will not increase the equilibrium price. 50 100 150 200 250 300 350 400 450 500 QUANTITY ||
3.In the market for nutritional bars there are two types of consumers: men and women. Suppose that the market equilibrium happens at the same price and quantity for both the women and men's market. At the market equilibrium, the price elasticity of demand for men is ϵMD,P=−2 and the price elasticity of demand for women is ϵWD,P=−2.4. If the supply for nutritional bars is perfectly elastic and if the government implements a subsidy of $A$A in this market, we can be sure that: The increase in the consumer surplus for women will be ?? (greater tlower tequal) than the increase in the consumer surplus for men. The deadweight loss will be greater in which market? (women, men, both)
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4. Which of the following statements is (are) correct? (x) When quantity supplied responds very little to changes in price, supply is said to be inelastic. (y) If the quantity supplied changes substantially when the price of the good changes a small amount, then the coefficient of price elasticity of supply is a number larger than one and supply is elastic. (z) Holding all else constant, if a paper manufacturer increases production by 12 percent when the market price of paper increases by 15 percent, then the price elasticity of supply must be inelastic since the coefficient of price elasticity of supply is equal to 0.80. A. (x), (y) and (z) C. В. (x) and (y) only (x) and (z) only E. (x) only D. (y) and (z) only
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