Managerial Economics And Business Strategy 9th Edition (without Access Code)
Managerial Economics And Business Strategy 9th Edition (without Access Code)
9th Edition
ISBN: 9781260263176
Author: Michael R. Baye, Jeffrey T. Prince
Publisher: McGraw Hill
Question
Book Icon
Chapter 3, Problem 3CACQ
To determine

(a)

The own price elasticity at price P = $15

Expert Solution
Check Mark

Answer to Problem 3CACQ

The own price elasticity at price P = $15 is equal to -1.5

Explanation of Solution

lnQXd=71.5lnPX+2lnPY0.5lnM+lnAWhere, PX=$15PY=$6M=$40,000A=$350αX=1.5Own price elasticity: EQX,PX=αX=1.5

Given:Demand function

Here, the demand is elastic because the absolute value of elasticity is greater than 1 (E>1).

Economics Concept Introduction

The price elasticity of demand shows the responsiveness of quantity demanded of good X due to the change in price of good X.

Formula for elasticity when demand function for good X is in log- linear form

lnQXd=α0+αXlnPX+αYlnPY+αMlnM+αHlnHOwn price elasticity: EQX,PX=αX

To determine

(b)

The cross-price elasticity of demand between good X and Y.

Expert Solution
Check Mark

Answer to Problem 3CACQ

The cross-price elasticity between good X and good Y is equal to 2.

Explanation of Solution

Given:

With the help of demand function with their respective values cross-price elasticity is:

lnQXd=71.5lnPX+2lnPY0.5lnM+lnAWhere, PX=$15PY=$6M=$40,000A=$350αY=2Cross price elasticity: EQX,PY=αY=2

Here, good X and good Y are substitutes (E= +ve)

Economics Concept Introduction

The cross-price elasticity shows the responsiveness of quantity demanded of good X due to the change in price of good Y.

Formula for cross-price elasticity of demand when demand function for good X is in log-linear form.

lnQXd=α0+αXlnPX+αYlnPY+αMlnM+αHlnH

cross price elasticity: EQX,PY=αY

To determine

(c)

The income elasticity when income M = $40,000.

Expert Solution
Check Mark

Answer to Problem 3CACQ

The income elasticity of demand is equal to -0.5

Explanation of Solution

With the help of the demand function and the respective values of variables, the income elasticity of the consumer can be calculated. The expression for income elasticity derivation is as follows:

lnQXd=71.5lnPX+2lnPY0.5lnM+lnAWhere, PX=$15PY=$6M=$40,000A=$350αM=0.5Income elasticity: EQX,M=αM=0.5

Here, good X is inferior good (E<0).

Economics Concept Introduction

The income elasticity of a product shows the responsiveness of quantity demanded of the product when the income of consumer changes.

Formula for cross-price elasticity of demand when demand function for good X is in log-linear form:

lnQXd=α0+αXlnPX+αYlnPY+αMlnM+αHlnHIncome elasticity: EQX,M=αM

To determine

(d)

The own advertising elasticity of demand

Expert Solution
Check Mark

Answer to Problem 3CACQ

The advertising elasticity of demand is equal to 1.

Explanation of Solution

With the help of demand function and the respective values of variables, the advertising elasticity of the demand can be calculated. The expression for income elasticity derivation is as follows:

lnQXd=71.5lnPX+2lnPY0.5lnM+lnAWhere, PX=$15PY=$6M=$40,000A=$350αH=1Advertising elasticity: EQX,H=αH=1

Economics Concept Introduction

The advertising elasticity of demand shows the responsiveness of quantity demanded of a product due to the change in advertising spent on the product.

Formula for cross-price elasticity of demand when demand function for good X is in log-linear form:

lnQXd=α0+αXlnPX+αYlnPY+αMlnM+αHlnHadvertising elasticity of demand: EQX,H=αH

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
MC The diagram shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20-year patent on its production. Assume this pharmaceutical firm charges a single price for its drug. At its profit-maximizing level of output, it will generate a total profit represented by OA. areas J+K. B. areas F+I+H+G+J+K OC. areas E+F+I+H+G. D. - it is not possible to determine with the informatio OE. the sum of areas A through K. (...) Po P1 Price F P2 E H 0 G B Q MR D ō
Price Quantity $26 0 The marketing department of $24 20,000 Johnny Rockabilly's record company $22 40,000 has determined that the demand for his $20 60,000 latest CD is given in the table at right. $18 80,000 $16 100,000 $14 120,000 The record company's costs consist of a $240,000 fixed cost of recording the CD, an $8 per CD variable cost of producing and distributing the CD, plus the cost of paying Johnny for his creative talent. The company is considering two plans for paying Johnny. Plan 1: Johnny receives a zero fixed recording fee and a $4 per CD royalty for each CD that is sold. Plan 2: Johnny receives a $400,000 fixed recording fee and zero royalty per CD sold. Under either plan, the record company will choose the price of Johnny's CD so as to maximize its (the record company's) profit. The record company's profit is the revenues minus costs, where the costs include the costs of production, distribution, and the payment made to Johnny. Johnny's payment will be be under plan 2 as…
Which of the following is the best example of perfect price discrimination? A. Universities give entry scholarships to poorer students. B. Students pay lower prices at the local theatre. ○ C. A hotel charges for its rooms according to the number of days left before the check-in date. ○ D. People who collect the mail coupons get discounts at the local food store. ○ E. An airline offers a discount to students.
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
ECON MICRO
Economics
ISBN:9781337000536
Author:William A. McEachern
Publisher:Cengage Learning
Text book image
Micro Economics For Today
Economics
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Economics For Today
Economics
ISBN:9781337613040
Author:Tucker
Publisher:Cengage Learning
Text book image
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Text book image
Survey Of Economics
Economics
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Microeconomics: Principles & Policy
Economics
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:Cengage Learning