Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Chapter 14, Problem 14.4P
Suppose the market for Hula Hoops is monopolized by a single firm.
a. Draw the initial equilibrium for such a market.
b. Now suppose the
c. Consider three possible ways in which the
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Your father owns a tourist site. He currently charges $5 per person who visits the site. Both Ghanaians and foreigners visit the site. The first demand curve is foreigners and the second is for Ghanaians. After your Econs 101 course you have realized that there may be a way to increase total revenue for your father. Using the demand curves below, answer the following questions.
What is your father’s current total revenue for the 2 groups?
The elasticity of demand is more elastic in which group or market?
Which market has the more inelastic demand? 1 mark
What is the elasticity of demand between the prices of $5 and $2 in the foreign market? Is this elastic or inelastic?
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market? Is this elastic or inelastic?
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and lower the price of a Ghanaians to $3. How much could your father
increase total…
. UT Sports, a store that sells various types of sports clothing and other sports items, is planning to introduce a new design of World Cup Kits. A consultant has estimated the demand curve to be
Q= 8400 – 420 P
Where Q is cap sales and P is price.
How many KITs could UT sell at $25.2 each?
How much would the price have to be to sell 7,560 KITs?
Suppose UT were to use the KITs as a promotion. How many KITs could UT give away free?
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Calculate the point price elasticity of demand at a price of $ 25.2.
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- Suppose Erin, the owner-manager of a local hotel projects the following demand for her rooms: a. Calculate the price elasticity of demand between 90 and 110. b. Is the price elasticity of demand between 90 and 110 elastic, unit elastic, or inelastic? c. Will Erins total revenue rise if she increases the price from 90 to 110? d. Calculate the price elasticity of demand between 110 and 130. e. Is the price elasticity of demand between 110 and 130 elastic, unit elastic, or inelastic? f. Will Erins total revenue rise if she increases the price from 110 to 130?arrow_forwardEvaluate the following statement: Along a downward-sloping linear demand curve, the slope and therefore the elasticity of demand are both 'constant.arrow_forward1.1. You are given the following demand and supply functions: P = 20 – 2Q + 0.8Z¡ demand P = -1 + 0.5Q - 0.9Z2 supply a. Find the reduced form equations for P and Q. Find competitive equilibrium values for P and Q given Z, = 1 and Z2 = 4. b. Calculate the point elasticity of demand and supply in equilibrium. c. Again letting Zj = 1 and Z, = 4, calculate the point structural elasticities e,(QIZ) and e,(QIZ,) and the point reduced form elasticities e,(QIZ,), e,(QIZ,), e,(PIZ¡), and e,(PIZ,). [Note: €,(Q\Z;) and e,(QIZ,) are, respectively, the elasticities of demand and supply. The s subscript indicates structural elasticity; r indicates reduced form.] d. Again letting Z, = 1 and Z, = 4, use the following two points along the demand curve to estimate an arc elasticity for demand: Qo = 6.2, Po = 8.4, Q1 = 4.2, and P = 12.4. Use the following two points to estimate an arc elasticity for supply: Qo = 9.66, Po = 0.23, Q1 = 10.66, and P, = 0.73. %3D %3Darrow_forward
- In 4-6 sentences, discuss how understanding the concept of price elasticity of demand is useful for a business owner/firm operating in any market structure. Copying the definition or restating the definition of elasticity will result in loss of points. (What does price elasticity of demand tell the firm in terms? How can they use that information to their benefit? Discuss the types of elasticity?)arrow_forwardConsider the following pairs of goods. In each case, which would you expect to have the more elastic demand? Why? e. personal computers or IBM personal computersarrow_forwardP t onces In a statement to P&G shareholders, the Chief executive officer (CEO) of Gillette (which is owned by P&G) indicated, "Despite several new product launches, Gillette's advertising-to-sales declined dramatically... to 5 percent last year. Gillette's advertising spending, in fact, is one of the lowest in our peer group of consumer product companies." If the elasticity of demand for Gillette's consumer products is similar to other firms in its peer group (which averages -4.5), what is Gillette's advertising elasticity? Instructions: Enter your response rounded to two decimal places. Is Gillette's demand more or less responsive to advertising than other firms in its peer group? O Less responsive More responsive It responds the same.arrow_forward
- Suppose a movie theater determines it can charge different prices to patrons who go to weekday matinees and people who attend evening and weekend shows. The movie theater's goal is to increase total revenue. See Hint The price elasticity of demand for weekend and evening patrons is -0.50, and the price elasticity of demand for matinee moviegoers is -2.80. Based on the price elasticity of demand for each group of people, how should the movie theater adjust its prices? Choose one: O A. Raise the price for matinee moviegoers, and keep the price the same for weekend and evening patrons. O B. Lower the price for matinee moviegoers, and raise the price for weekend and evening patrons. O C. Lower the price for matinee moviegoers, and keep the price the same for weekend and evening patrons. O D. Raise the price for matinee moviegoers, and lower the price for weekend and evening patrons.arrow_forwardA. Option 1: Sensitive, Infinitley Sesitive or Insensitive Option 2: Elastic Demand, Inelastic Supply, Elastic Supply, or Ineleastic Demand B. Option 1: Sensitive, Infinitley Sesitive or Insensitive Option 2: Elastic Demand, Inelastic Supply, Elastic Supply, or Ineleastic Demandarrow_forwardYou are working trying to estimate the proper price to charge a market for the firm that sells beer in Lancaster Pennsylvania. They estimated that the demand curve for the market is Quantity demanded=20-2P. The firm currently prices the good at 8 dollars. They want to move the price to 6 dollars in a attempt to increase profits. 1) What is the elasticity for this move in price (Use the midpoint method for elasticity) make sure you show your work? 2) Now you are contacted by a different branch of this company that is in a lower priced (Scranton P.A.) market with the same demand curve. They want to move the price from 2 to 5 dollars. What is the elasticity of this change (Use the midpoint method)? 3) Now suppose you find out that there is a similar product that impacts the Quantity demanded for a product. The relationship is Qd=15+Pb. Now suppose the price (Pb) of the other good is 5 and goes to 6. What is the Cross-price elasticity of the good?arrow_forward
- . A hot dog vendor faces a daily demand curve of Q=1800-15P, where P is the price of a hot dog in cents and Q is the number of hot dogs purchased each day. I. if the vendor has been selling 300 hot dogs each day, how much revenue has he been collecting? II. What is the price elasticity of demand for hot dogs (hint: you can use the formula for elasticity that is slope times (P/Q) or you can calculate the elasticity by picking a new P and Q – ie try P=120 and calculate the new Q and solve for elasticity)? III. Does the law of demand hold? IV. If the vendor wants to generate more revenue, should he raise or lower the price of hot dogs?arrow_forwardQUESTION TWo. Suppose the Daily Graphic Newspaper estimates that if it raises the price of its newspaper from Ghc1.00 to Ghc1.50 then the number of subscribers will fall from 50,000 to 40,000. a. What is the price elasticity of demand for the Daily Newspaper when elasticity is calculated using the midpoint method? b. What is the advantage of using the midpoint method? c. If the Daily Newspaper's only concern is to maximize total revenue, should it raise the price of a newspaper from Ghc1.00 to Ghc1.50? Why or why not? d. Suppose there is an increase in consumers' incomes. In the market for automobiles (a normal good), does this event cause an increase in demand or an increase in quantity demanded? Does this cause an increase in supply or an increase in quantity supplied? (Explain. NB: Explanation must not be more than half a page.) e. Suppose there is an advance in the technology employed to produce automobiles. In the market for automobiles, does this event cause an increase in supply…arrow_forwardA city Has built a bridge over a river and it decides to charge a toll to everyone who crosses. For one year, the city charges a variety of different tools told and records information on how many drivers across the bridge. The city thus gathers information about elasticity of demand. If the city wishes to raise as much revenue as possible from the tolls, where will the city decide to charge a toll: in the inelastic portion of the demand curve, the elastic portion of the demand curve, or the unit elastic portion? Explain.arrow_forward
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