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 8CACQ
To determine
The approximate 95% confidence interval for the true values of a and b when inverse demand function is given.
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All questions utilize the multivariate demand function for Smooth Sailing sailboats in C6 on text page 83. Compute to three decimal places.
Initial values are: PX = $9500 PY = $10000 I = $15000 A = $170000 W = 160
This function is: Qs = 89830 -40PS +20PX +15PY +2I +.001A +10W
1.(a). Use the above to calculate the arc price elasticity of demand between PS = $9000 decreasing to PS = $8000. The arc elasticity formula is:
1.(b). Judging from the computation in (a), do you expect the revenue resulting from the decrease in Ps to $8000 to increase, remain the same, or decrease relative to the revenue at Ps = $9000. (Hint: see the table on page 65 of Truett). Explain your choice.
1.(c). Calculate the point elasticity of demand for Smooth Sailing sailboats at PS = $9000 (which should make Qs = 101600). The formula is:
1.(d). Does this elasticity value indicate that Smooth Sailing demand is relatively responsive to changes in the price of these sailboats? Explain…
A large company in the communication and publishing industry has quantified the relationshipbetween the price of one of its products and the demand for this product as Price = 150 − 0.01× Demand for an annual printing of this particular product. The fixed costs per year (i.e., perprinting) = RM50,000 and the variable cost per unit= RM40.
a) Analyze what is the maximum profit that can be achieved if the maximum expected demand is 6,000 units per year.
b) Compute what is the unit price at this point of optimal demand.
Wharton Econometric Forecasting, LLC has been hired to analyze demand in 30 regional markets for Product Y, a major item. A statistical analysis of demand in these markets shows (standard errors in parentheses):
QY = 26,950 − 450P + 220PX + 0.08A + 0.01I
(11,000) (150) (180) (0.3) (0.05)
R2 = 0.95
Standard Error of the Estimate = 10
Here, QY is market demand for Product Y, P is the price of Y in dollars, A is dollars of advertising expenditures, PX is the average price in dollars of another (unidentified) product, and I is dollars of household income. In a typical market, the price of Y is $100, PX is $70, advertising expenditures are $50,000, and average family income is $60,000.
Use the estimated demand function to calculate the expected value of QY in a typical market.
Calculate the 95% confidence interval within which you would expect to find actual values of sales.…
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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- Wharton Econometric Forecasting, LLC has been hired to analyze demand in 30 regional markets for Product Y, a major item. A statistical analysis of demand in these markets shows (standard errors in parentheses): QY = 26,950 − 450P + 220PX + 0.08A + 0.01I (11,000) (150) (180) (0.3) (0.05) R2 = 0.95 Standard Error of the Estimate = 10 Here, QY is market demand for Product Y, P is the price of Y in dollars, A is dollars of advertising expenditures, PX is the average price in dollars of another (unidentified) product, and I is dollars of household income. In a typical market, the price of Y is $100, PX is $70, advertising expenditures are $50,000, and the average family income is $60,000. 1. Which variables in this regression model are statistically significant at the 95 percent confidence level? Show your work.arrow_forwardA statistician has estimated the following demand function for the demand faced by firm X: Q = 150 – 5.4P +0.8A + 2.8Y – 1.2PZ where Q is the quantity demanded of product X and P is the price of, A is X's advertising expenditure, Y is consumer income per capita, and PZ is the price of firm Z's product. (a) If at price P = 10 demand is Q = 100 (with all other factors fixed), where and by what percentage should firm X change price to increase its revenue by 20%? (b) If advertising expenditure A is increased by 5000, how and by how much will the demand for Q be affected? (c) What is expected to be the ratio of the goods of firms X and Z?arrow_forwardThe multivariate demand function below will be needed for questions 12-18. Setting: Grapple, Inc. is a leading seller of laptop personal computers. However, they want to become a leading tablet seller, too. Your marketing department, aided by your economics staff, has estimated a function to help you in the quest for market leader in tablets. The variables are defined after the function. Qg = 10000 - 25Pg + 20Ph + 30Pr - 15dv - 35Psc - 10Pmm + 0.05Ag + 0.03A -25C + 0.1Y Qg = the number of Grapple tablet computers demanded per week. Pg = the price of each new Grapple tablet (in $). Ph = the price of each Hewpaq tablet (in $). Pr = the price of each Ronova tablet. Pdv = the price to equip a tablet with Holographic digital video (in $, this is an upgrade option that enables three-dimensional graphics on a tablet. Two-dimensional graphics is standard equipment). Psc = the price of various screen sizes (in $, a 8 inch is standard, but upgrade options are 10…arrow_forward
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