The following regression is the demand for free-range chicken, which was estimated from (actual) nationwide data provided by a large UK retailer over a two-year period: Qx = 229,821 – 38,121 Px + 28,826 Py where: Qx = quantity of free-range chicken sold (number of units); Px = average price of free-range chicken (£); and Py = average price of standard non-free-range chicken (£). The average for these variables in these two years are: = 117,735; = £ 5.56; and = 3.46. If marginal cost MC = 2.5 (assume this is constant), calculate the profit-maximising price and the revenue maximising price. In doing so, remember that TRx = Qx · Px, and from the demand equation we obtain (note that is the average value of Py). How do these prices compare with the current price?
The following regression is the demand for free-range chicken, which was estimated from (actual) nationwide data provided by a large UK retailer over a two-year period: Qx = 229,821 – 38,121 Px + 28,826 Py where: Qx = quantity of free-range chicken sold (number of units); Px = average price of free-range chicken (£); and Py = average price of standard non-free-range chicken (£). The average for these variables in these two years are: = 117,735; = £ 5.56; and = 3.46. If marginal cost MC = 2.5 (assume this is constant), calculate the profit-maximising price and the revenue maximising price. In doing so, remember that TRx = Qx · Px, and from the demand equation we obtain (note that is the average value of Py). How do these prices compare with the current price?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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- The following regression is the demand for free-range chicken, which was estimated from (actual) nationwide data provided by a large UK retailer over a two-year period:
Qx = 229,821 – 38,121 Px + 28,826 Py
where: Qx = quantity of free-range chicken sold (number of units); Px = average
If marginal cost MC = 2.5 (assume this is constant), calculate the profit-maximising price and the revenue maximising price. In doing so, remember that
TRx = Qx · Px, and from the demand equation we obtain
(note that is the average value of Py). How do these prices compare with the current price?
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