Microeconomics
Microeconomics
11th Edition
ISBN: 9781260507041
Author: Colander, David
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 6, Problem 10QE

A newspaper recently lowered its price from $5.00 to $3.00. As it did, the number of newspapers sold increased from 240,000 to 280,000. (LO6-3)

  1. a. What was the newspaper’s elasticity of demand?
  2. b. Given that elasticity, did it make sense for the newspaper to lower its price?
  3. c. What would your answer be if much of the firm’s revenue came from advertising and the higher the circulation, the more it could charge for advertising?
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QUESTION 4.6 Your summer internship is with the strategy department of Chevy Chase Bank (CCB). They are considering changing the fee they charge to non-customers who use their automated teller machines (ATMs). CCB customers can use CCB ATMs without a fee. CCB conducted some market research and have found that when they raise their ATM fee, they actually increase the number of new checking account customers per day-the cross-price elasticity is positive. Non- customers get tired of paying the fee so they become customers. However, as you raise ATM fees you lose non-customer transactions at your ATMs. The non-customer demand for CCB ATM transactions is given by the equation Q = 19,000 - 6,000P. Right now CCB handles 10,000 non- customer ATM transactions per day at a fee of $1.50. a. What is the own-price elasticity for ATM fees charged to non-customers? N At the current ATM fee, should you raise or lower your ATM fees? Why? b. What should your new ATM fee be if your marginal cost of…
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