Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 3, Problem 20PAA
With milk sales sagging of late. The Milk Processor Education Program (MPEP) decided to move on from the famous Got Milk” ad slogan in favor of a new one. “Milk Life.” The new tagline emphasizes milks nutritional benefits, including its protein content. MPEP began collecting data on the number of gallons of milk households consumed weekly (in millions), weekly
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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.
A recent report by the Centers for Disease Control looked at the relationship between the price of beer and the
incidence of new cases of STD's. The report concluded that a beer tax increase of $.20 could reduce overall STD
rates by 8.9%. Assume that a six pack cost $5.90 before the price increase. Calculate the cross price elasticity
between beer and STD's. What is the sign of this cross-price elasticity? According to your estimate, are beer
and STD's compliments or substitutes? Does your answer make sense? Explain.
When the local pizza parlor prices pizzas at $12 each, it generally sells 7000 pizzas per month. If it lowers the price to $10, sales
increase to 9000 pizzas per month. Given this information, we know that the price elasticity of demand for pizza is about
1.38, and an increase in price from $10 to $12 results in a decrease in total revenue.
0.72, and an increase in price from $10 to $12 results in an increase in total revenue.
0.72, and an increase in price from $10 to $12 results in a decrease in total revenue.
1.38, and an increase in price from $10 to $12 results in an increase in total revenue.
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
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- During a particular week six months ago, suppose that the price of a 1 pound slab of Scottish Coho salmon at your local grocery store was $20; currently the price is $25/lb. The manager informs you that 100 pounds were sold during a particular week six months ago when the price was $20/lb. while 80 pounds were sold this week. Calculate the price elasticity of demand (point formula, not midpoint/arc formula—consult the textbook). Based solely on your calculation, is the demand relatively elastic or relatively inelastic? If the grocery store is a price setter, should it increase or decrease the price of salmon to increase its revenue? Only consider this one good—keep it simple. Answer in a few sentences.arrow_forwardThe price of a package of Reese's Peanut Butter Cups rises from $1.00 to $1.25. As a result, the weekly quantity of Reese's demanded falls from 10,000 to 9,000 packages. Calculate the price elasticity of demand using the average of the initial and new prices and quantities as the basis for figuring the percentage changes.arrow_forwardWhen the price of a gallon of milk increases from $6 to $8, quantity demanded decreases to 27 gallons. Assuming the price elasticity of demand for milk is -0.3, what is the original quantity demanded? (assuming further that this is the point elasticity relative to the original point on the demand curve.) Please make sure you give a numerical answer with no units and/or space or period (.) or comma (,) before or after your answer. Enter your answer herearrow_forward
- Calculating the price elasticity of demand: A step-by-stepguide Suppose that during the past year, the price of a virtual reality headset rose from $4,100 to $4,550. During the same time period, consumer sales decreased from 420,000 to 313,000 headsets. Calculate the elasticity of demand between these two price–quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers. (Note: For decreases in price or quantity, enter values in the Change column with a minus sign.) Original New Average Change Percentage Change Quantity Price Step 1: Fill in the appropriate values for original quantity, new quantity, original price, and new price. Step 2: Calculate the average quantity by adding the original quantity and the new quantity, and then dividing by two. Do the same for the average price. Step 3: Calculate the change in quantity…arrow_forwardYour research into the spice market shows that when the price of spices increases by 5%, the quantity demanded of spices decreases by 5% and the quantity demanded of vegetables decreases by 16%. Based on this information, what is the cross-price elasticity of demand for vegetables? Enter a number only. Remember, for some elasticities, we take the absolute value. For others, we do not. Include a negative sign if needed.arrow_forwardA gas station owner sees a report on TV which states that the number of gallons of gasoline sold in the U.S. has barely dropped, even as the price per gallon has soared in recent weeks. The price elasticity of demand for gasoline is described in the report as “highly inelastic”. The gas station owner responds to this report by jacking up the prices at his station by 50 cents per gallon. Sales and revenues at his station plummet in the first month after the price increase, and drop even further in the second month. What factors did this gas station owner fail to consider when he responded to the TV report by aggressively raising his prices?arrow_forward
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