Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 3, Problem 1CACQ
To determine
(a)
The revenue at different
Expert Solution
Answer to Problem 1CACQ
Revenue increases and
Explanation of Solution
If price is fall from $12 to $10,
When P = $12,
Revenue = P*Q
= $12*1
= $12
When P = $10
Revenue = $10*2 = $20
Therefore, if price is fall from $12 to $10 then the revenue is rises from $12 to $20.
In this range, the ratio of price and quantity is greater than 1, i.e.,
So,
Economics Concept Introduction
Elasticity shows the responsiveness of quantity demanded due to the change in the price of a commodity. The change in revenue due to the change in price depends upon the elasticity of the demand curve.
If demand is elastic, an increase (decrease) in price will lead to a decrease (increase) in total revenue. If the demand is inelastic, an increase (decrease) in price will lead to an increase (decrease) in total revenue. Total revenue is maximized at the point where demand is unitary elastic.
To determine
(b)
Revenue and elasticity at given price level.
Expert Solution
Answer to Problem 1CACQ
Revenue is decreases here and demand is inelastic.
Explanation of Solution
If price is fall from $4 to $2
When P = $4,
Revenue = P*Q
= $4*5
= $20
When P = $2
Revenue = $2*6 = $12
Therefore, if price is fall from $4 to $2 then the revenue is fall from $20 to $12.
In this range, the ratio of price and quantity is less than 1, i.e.,
So, demand is inelastic here.
To determine
(c)
Revenue and elasticity at given price level.
Expert Solution
Answer to Problem 1CACQ
Revenueis maximum at p = $7 and elasticity at this price is equal to 1.
Explanation of Solution
Total revenue is maximized at the point where demand is unitary elastic.
When the percentage change in price is equal to the percentage change in quantity demanded, then the demand is unitary elastic.
At P = $7
Q = 3.5
Revenue = $24.5
When p = $7 and Q = 3.5, the elasticity is equal to 1.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
You are the manager of a firm that receives revenues of $20,000 per year from product X and $80,000 per year from product Y. The own price elasticity of demand for product X is −3, and the cross-price elasticity of demand between product Y and X is −1.6.How much will your firm's total revenues (revenues from both products) change if you increase the price of good X by 2 percent?Instructions: Enter your response rounded to the nearest dollar. If you are entering a negative number, be sure to use a (−) sign.
$ _____________
You are the manager of a firm that receives revenues of $40,000 per year from product X and $70,000 per year from product Y. The
own price elasticity of demand for product X is -1.5, and the cross-price elasticity of demand between product Y and X is 1.6.
How much will your firm's total revenues (revenues from both products) change if you increase the price of good X by 1 percent?
Instructions: Enter your response rounded to the nearest dollar. If you are entering a negative number, be sure to use a (-) sign.
$
You are a manager in charge of monitoring cash flow at a major publisher. Paper books comprise 40 percent of your revenues, which grow about 2 percent annually. You recently received a preliminary report that suggests the growth rate in ebook readings has leveled off, and that the cross-price elasticity of demand between paper books and ebooks is -0.3. In 2016, your company earned about $600 million from sales of ebooks and about $400 million from sales of paper books.
If the own price elasticity of demand for paper books is -2, how will a 4 percent decrease in the price of paper books affect your overall revenues from both paper books and ebooks sales?
(Enter your response rounded to one decimal place.)
Your overall reveues will change by $____ million.
Chapter 3 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
Ch. 3 - Prob. 1CACQCh. 3 - The demand curve for a product is given by...Ch. 3 - Prob. 3CACQCh. 3 - Suppose the own price elasticity of demand for...Ch. 3 - Suppose the cross-price elasticity of demand...Ch. 3 - You are the manager of a firm that receives...Ch. 3 - A Quant jock from your firm used a linear demand...Ch. 3 - Prob. 8CACQCh. 3 - Prob. 9CACQCh. 3 - Prob. 10CACQ
Ch. 3 - Prob. 11PAACh. 3 - Prob. 12PAACh. 3 - For the first time in two years, Big G (the cereal...Ch. 3 - Prob. 14PAACh. 3 - You are a division manager at Toyota. If your...Ch. 3 - You are a manager in charge of monitoring cash...Ch. 3 - As newly appointed Energy Czar. your goal is to...Ch. 3 - As the owner of Barneys Broilers—a fast-food...Ch. 3 - Prob. 19PAACh. 3 - With milk sales sagging of late. The Milk...Ch. 3 - Prob. 21PAACh. 3 - Prob. 22PAACh. 3 - Prob. 23PAA
Knowledge Booster
Similar questions
- You are a manager in charge of monitoring cash flow at a major publisher. Paper books comprise 70 percent of your revenues, which grow about 2 percent annually. You recently received a preliminary report that suggests the growth rate in ebook reading has leveled off, and that the cross-price elasticity of demand between paper books and ebooks is -0.6. In 2019, your company earned about $300 million from sales of ebooks and about $700 million from sales of paper books. If your data analytics team estimates the own price elasticity of demand for paper books is -2.5, how will a 2 percent decrease in the price of paper books affect your overall revenues from both paper books and ebooks sales? Instructions: Enter your response rounded to one decimal place. Your overall revenues will change by $ million.arrow_forwardYou are the manager of a firm that receives revenues of $20,000 per year from product X and $90,000 per year from product Y. The own price elasticity of demand for product X is -3, and the cross-price elasticity of demand between product Yand X is -1.3. 1 percent? How much will your firm's total revenues (revenues from both products) change if you increase the price of good X by Instructions: Enter your response rounded to the nearest dollar. If you are entering a negative number, be sure to use a (-) sign.arrow_forwardRequired information You are the manager of a firm that receives revenues of $20,000 per year from product X and $80,000 per year from product Y. The own price elasticity of demand for product X is −3 and the cross-price elasticity of demand between products Y and X is −1.6. Suppose you increase the price of good X by 2 percent. Assume that the information about product X and product Y from the problem changed to the following: Revenues per year from product X $ 20,000 Revenues per year from product Y $ 75,000 Own price elasticity of demand for product X −3 Cross-price elasticity of demand between products X and Y −1.5 Price increase of product X (percent) 2 Instruction: Update the data in your spreadsheet to the values above and enter the recomputed answer for the original question. Required: How much will your firm’s total revenues (revenues from both products) change? Change in revenues: ____________________arrow_forward
- In this question, you'll deal with two goods, and you'll have to solve for cross-price elasticity using the percent change formula. When the old price of a file cabinet was $1,171 per cabinet, an old quantity of 212 desks were sold. After the price decreased to a new price of $823 per file cabinet, a new quantity of 379 desks were sold. Using these numbers, what is the cross-price elasticity of file cabinets for desks? Round your answer to 3 decimal places.arrow_forwardQuestion attachedarrow_forwardYou are a manager in charge of monitoring cash flow at a major publisher. Paper books comprise 80 percent of your revenues, which grow about 2 percent annually. You recently received a preliminary report that suggests the growth rate in ebook reading has leveled off, and that the cross-price elasticity of demand between paper books and ebooks is −0.2. In 2019, your company earned about $150 million from sales of ebooks and about $600 million from sales of paper books. If your data analytics team estimates the own price elasticity of demand for paper books is −2.5, how will a 1 percent decrease in the price of paper books affect your overall revenues from both paper books and ebooks sales?arrow_forward
- Viking InterWorks is one of many manufacturers that supplies memory products to original equipment manufacturers (OEMs) of desktop systems. The CEO recently read van article in a trade publication that reported the projected demand for desktop systems to be Qddesktop = 1,600 −2Pdesktop + .6M (in millions of units), where Pdesktop is the price of a desktop system and M is consumer income. The same article reported that the incomes of the desktop systems’ primary consumer demographic would increase 4.2 percent this year to $61,300 and that the selling price of a desktop would decrease to $980, both of which the CEO viewed favorably for Viking. In a related article, the CEO read that the upcoming year’s projected demand for 512 MB desktop memory modules is Qdmemory = 11,200 − 100Pmemory − 2Pdesktop (in thousands of units), where Pmemory is the market price for a 512 MB memory module and Pdesktop is the selling price of a desktop system. The…arrow_forwardYou are a manager in charge of monitoring cash flow at a major publisher. Paper books comprise 40 percent of your revenues, which grow about 2 percent annually. You recently received a preliminary report that suggests the growth rate in ebook reading has leveled off, and that the cross-price elasticity of demand between paper books and ebooks is −0.3. In 2019, your company earned about $600 million from sales of ebooks and about $400 million from sales of paper books. If your data analytics team estimates the own price elasticity of demand for paper books is −2, how will a 4 percent decrease in the price of paper books affect your overall revenues from both paper books and ebooks sales? Instruction: Enter your response rounded to one decimal place. Your overall revenues will change by $arrow_forwardsupply occurs when price elasticity of supply is less than 1, and, than 1. [4.5.1 How Much Quantity Supplied Changes When Price Changes] Inelastic; unit elastic B) Inelastic; elastic Elastic; inelastic D) Unit elastic; elastic supply occurs when price elasticity of supply is greaterarrow_forward
- You run a shop that sells everything connected with coffee. Currently, you sell 21 coffee makers per month, but you would like to increase this to 55. Knowing that coffee makers and coffee beans are complements, you have decided to stimulate demand for coffee makers by decreasing the price of coffee beans. Given that you achieved your sales target for coffee makers by reducing the price of coffee beans from $1.10 to $0.89, what is the cross-price elasticity of demand between the two goods? Use the midpoint method, and round all intermediate calculations and your final answer to two decimal places if necessary.arrow_forwardViking InterWorks is one of many manufacturers that supplies memory products to original equipment manufacturers (OEMS) of desktop systems. The CEO recently read an article in a trade publication that reported the projected demand for desktop systems to be: addesktop = 1600 – 2Pdesktop + 0.6M (in millons of units), where Pdesktop is the price of a desktop system and M is consumer Income. The same article reported that the incomes of the desktop system's primary consumer demographic would increase 4.2 percent this year to $61,300 and that the selling price of a desktop would decrease to $980, both of which the CEO viewed favorably for Viking. In a related article, the CEO read that the upcoming year's projected demand for 32 GB desktop memory modules is: admemory = 1,200 - 100Pmemory - 2Pdesktop (n thousands of units), where Pmemory is the market price for a 32 GB memory module and Pdesktop is the selling price of a desktop system. The report also indicated that five new, small…arrow_forward*4* When the price of product "X" is (P1=) $42, Shyanne purchases 20 units of product "X" and when the price of product "X" is (P2=) $38, she purchases 30 units of product "X". Shyanne's "arc" price elasticity of demand for product "X" is (Ex,x =): -0.25 " and the demand for "X" is relatively elastic. -4.00 " and the demand for "X" is relatively inelastic. " -0.25 " and the demand for "X" is relatively inelastic. " -4.00 " and the demand for "X" is relatively elastic. " -0.25 " and "X" is a "normal" good. Save & Continue Continue without savarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education