MICROECONOMICS (LL)-W/ACCESS >CUSTOM<
MICROECONOMICS (LL)-W/ACCESS >CUSTOM<
11th Edition
ISBN: 9781264207718
Author: Colander
Publisher: MCG CUSTOM
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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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A local pizzeria sells 500 large pepperoni pizzas per week at a price of $20 each. Suppose the owner of the pizzeria tells you that the price elasticity of demand for his pizza is -3, and he asks you for advice. He wants to know two things. First, how many pizzas will he sell if he cuts his price by 10%? Second, how will his revenue be affected?  If he cuts his price by 10%, his sales will increase to______pizzas, and his total revenue will increase to $ _____.
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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