Economics: Principles, Problems, & Policies (McGraw-Hill Series in Economics) - Standalone book
20th Edition
ISBN: 9780078021756
Author: McConnell, Campbell R.; Brue, Stanley L.; Flynn Dr., Sean Masaki
Publisher: McGraw-Hill Education
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Chapter 12, Problem 3RQ
To determine
Marginal revenue, total revenue, elasticity of demand .
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Students have asked these similar questions
Reid has determined that the daily demand for doughnuts at his favorite bakery is described by the following equation:
Qd = 3,300 - 3000P
where Qd is the daily quantity demanded in number of doughnuts and P is the price per doughnuts in dollars.
a. What is the point price elasticity of demand at a price of $0.70?
b. Assume the price is currently $0.70. What is the marginal revenue obtained by selling one additional doughnut?
c. The marginal cost of producing an additional doughnut is $0.10. What price should the bakery establish in order to maximize profits?
FACT: Sonic @ Co. produces sonic boom chocolates, demand for which is: D(p) 50(p+2) 2),
[1] Write down the equation of the total revenue function for this firm in terms of price.
[2] Derive the own price elasticity of demand.
[3] Suppose, Sonic @ Co. is planning to charge $8 for each chocolate. Calculate the absolute value
of the own price elasticity of demand at this price.
[4] If you were hired as a consultant for Sonic @ Co., would you advise them to charge $8 for each
chocolate at equilibrium? Clearly write YES/NO, and briefly justify your answer with required
calculation.
[5] To complete your answer to this question, enter only the absolute value of the own price
elasticity of demand you calculated (in step [3] above) and enter the value in this blank here.
1. Suppose for some firm, 14 units were sold at the initial price of $33 and after the price rose, 10 units were sold at the new price of $39. Compute the price elasticity of demand and interpret the result.
2. Returning to your computation in #1, will revenue have increased or decreased as a result of that price change? On the basis of this information do we know enough to assess whether the price change was a wise decision for the firm? Explain.
3. Ben purchased 12 gallons of gasoline each day. When the price of gasoline was $2.80 per gallon, Ben purchased 12 gallons of gasoline. When the price of gasoline fell to $2.10 per gallon, Ben purchased 12 gallons of gasoline. Use price elasticity of demand to describe Ben’s demand for gasoline. What does Ben’s demand curve for gasoline look like?
Chapter 12 Solutions
Economics: Principles, Problems, & Policies (McGraw-Hill Series in Economics) - Standalone book
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- 4. In one month, a beef burger restaurant sold 2,500 personal beef burger at $2.50 per pizza. When this restaurant increased its price by 20%, its total revenue for the next month increased to $12,500. As a result of this price increase, however, the monthly sales of chicken meat decreased from 2,500 slices to 2,000 slices. Using the arc elasticity method, a) find the price elasticity of demand for this restaurant's beef burger; and b) find the cross-elasticity of demand for chicken meat with respect to the price of burger. Comment on your result.arrow_forward2. Calculating marginal revenue from a linear demand curve The blue curve on the following graph represents the demand curve facing a firm that can set its own prices. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. PRICE (Dollars per unit) 160 TOTAL REVENUE (Dol 140 120 2250 2000 1750 1500 1250 On the graph input tool, change the number found in the Quantity Demanded field to determine the prices that correspond to the production of 0, 10, 20, 25, 30, 40, and 50 units of output. Calculate the total revenue for each of these production levels. Then, on the following graph, use the green points (triangle symbol) to plot the results. 1000 750 500 250 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Units) 200 Demand 10 120 -40 15 30 35 QUANTITY (Number of units) 45 Graph Input Tool…arrow_forward(b). The Carrefour Hypermarket sells 2,500 boxes of chicken per month at RO 3.50 each. The own price elasticity for chicken is estimated to be -0.45. If Carrefour Hypermarket increases the price of a box of chicken by 15.5 percent: (b) ). How many boxes of chicken will Carrefour Hypermarket sell? 2350 (b). (ii). Carrefour Hypermarket's revenue will change by RO 344arrow_forward
- Suppose the demand curve is Qp = 400 - 5P 1) Compute the price elasticity of demand at QD= 15 and at QD= 375 2) Is the point elasticity elastic or inelastic? 3) How much is total revenue at Qò= 15 and at QD= 375 4) Is total revenue maximised? Why? Tip: Use the elasticity to calculate marginal revenuearrow_forwardONLY ANSWER QUESTION #2 1. Online the timing and tailoring of prices to specific models of products is the key to successful pricing in online markets. And “Thanks to the ready availability of data in online markets, a pricing manager can easily approximate the elasticity of demands for the different products it sells online.”Assuming a 10 percent decrease in price increases sales by 28 percent, calculate the price elasticity of demand? If the wholesale price of the online product is $50 and sells at a price comparison site that charges $.50 per click and boasts a conversion rate of 5 percent (an average of 20 clicks are needed to generate a sale). What price should you charge for the product? What is the optimal markup on cost? 2. The authors assert that price sensitivity is affected by (1) product life cycles, and (2) numbers of competitors. In fact, “when the number of competing sellers doubles, a firm’s elasticity of demand is expected to double (and you should be able to verify…arrow_forwardMacmillan Learning Consider two scenarios giving some information about price elasticity of demand. For each scenario, calculate the missing data and determine if the price change under consideration will increase, decrease, or not change the firm's total revenue. Round your answers to two decimal places. At Betty's Burgers, the hamburgers have a price elasticity of demand equal to -4.55. Suppose the number of burgers Betty sells increases by 95.00% Betty's prices must have decreased - m Betty can expect her total revenue to increase. Patty can expect the number of golfers to ...by 21.57 Patty's Putts increased the price of a round of miniature golf by 46.0%. Patty has calculated her price elasticity of demand at -0.42. ....by Incorrect Incorrect Dearrow_forward
- When the West Coast Surfboard Company lowered the price of surfboards by 10 percent, it sold 20 percent more surfboards. What is the price elasticity coefficient for surfboards? 0.5 1 O 20arrow_forwardThe Hevishus Corp. (HC) is a profit-maximizing company that owns the only cement factory in Charleston, South Carolina, and is the only seller of cement in that area; it also owns the only cement plant in Portland, Oregon, and is the only seller of cement there. 1. Its statistician-consultant has determined that the elasticity of demand for cement in Portland is -3.50 and in Charleston is -2.25, and HC has priced its cement in accordance with this information. In which city does it charge a higher price for cement? Explain. 2. The mayor of Portland has levied a $250,000 annual factory fee on any cement factory in the city. Though it is not happy about the fee, HC pays it and continues producing and selling cement in Portland. How will the fee affect the price of cement that HC sells in Portland? Explain.arrow_forwardExplain it earlyarrow_forward
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