Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 6, Problem 6.2IP
To determine
The relationship between an increase in
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Jim's Camera shop sells two high-end cameras, the Sky Eagle and Horizon. The demand for these two cameras are as follows (DS = demand for the Sky Eagle, Ps is the selling price of the Sky Eagle, DH is the demand for the Horizon and PH is the selling price of the Horizon):
Ds = 225 - 0.6 Ps + 0.3 PH
DH = 270 + 0.1 Ps - 0.58 PH
The store wishes to determine the selling price that maximizes revenue for these two products. Select the revenue function for these two models. Choose the correct answer below.
(i)
Ps Ds + PHDH = PH(270 - 0.1 Ps - 0.58 PH) + Ps(225 - 0.6 Ps + 0.3 PH)
(ii)
Ps Ds - PH DH = Ps(225 - 0.6 Ps + 0.3 PH) - PH(270 - 0.1 Ps - 0.58 PH)
(iii)
Ps Ds + PH DH = Ps(225 - 0.6 Ps + 0.3 PH) + PH(270 + 0.1 Ps - 0.58 PH)
(iv)
Ps Ds - PH DH = Ps(225 + 0.6 Ps + 0.3 PH) - PH(270 - 0.1 Ps - 0.58 PH)
Find the prices that maximize revenue.
Do not round intermediate calculations. If required, round your answers to two decimal places.
Optimal Solution:
Selling price of…
To calculate the price elasticity of demand using the midpoint method, you would use the following approach:Group of answer choices
% change in price / % change in quantity
% change in quantity / % change in price
% change in quantity minus the % change in price
Price times quantity
The municipal corporations in most parishes in Jamaica have initiated a
program to charge residents for garbage disposal based on the number of cans
filled per week. The parish of Kingston decided to increase its per-can price
from $500 to $750 per week. In the first week, it was found that the number of
cans that were brought to the curb fell from 500 to 450 (although the workers
complained that the cans were heavier). The chief economist ran the numbers,
informed the mayor that the demand for disposal was inelastic, and
recommended that the price be raised to maximize town revenue from the
program. Four months later, at a price of $1000 per can, the number of cans has
fallen to 125 and town revenues are down. What might have happened?
Chapter 6 Solutions
Managerial Economics: A Problem Solving Approach
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