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 8, Problem 8MC
To determine
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Suppose (the numbers are loosely based on reality) that the tax on petrol is raised from 40 cents per litre to 60 cents per litre. The before-tax total cost of retailing petrol is $1.20 per litre. Assume that 100% of the tax is always passed through to consumers. After the increase in taxes, the quantity of petrol sold falls from 3,000,000 litres a day to 2,800,000 litres a day.
Calculate the price elasticity of demand for petrol using the mid-point formula, based on the change in price due to the tax. Use three decimal places in your calculations. What are the implications for policymakers who want to raise revenue, when considering raising taxes on petrol?
Grilled cheese sandwiches are $4, and the quantity demanded is 60. When the price falls to $3/sandwich, the quantity demanded rises to 80. What is the price elasticity of grilled cheese sandwiches?
Widgets are $3, and the quantity demanded is 200. When the price of widgets rises to $5, the quantity demanded falls to 100. What is the price elasticity of demand for widgets?
Coffee is $1 per cup, and the quantity demanded is 500. The price of coffee rises to $1.25 per cup, and the quantity demanded falls to 400. What is the price elasticity of demand for cups of coffee?
1. The equation for a demand curve is P = 45 - 3Q.
What is the elasticity in moving from a quantity of 4 to
a quantity of 5?
2. The equation for a demand curve is P = 4/Q. What
is the elasticity of demand as the price falls from 10 to 8?
What is the elasticity of demand as the price falls from 18
to 16? Would you expect these answers to be the same?
Chapter 8 Solutions
Managerial Economics: A Problem Solving Approach
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- The following shows the monthly demand for oranges in my neighborhood. What is the price elasticity of demand when price changes from $0.50 to $1.00? Price per pound Quantity Demanded $0 50 $0.50 45 $1.00 40 $1.50 35 $2.00 30 $2.50 25 Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a -9 -1/9 -1/4 d. -4arrow_forward10 True or False: Suppose you are advising the Egg Farmers of Canada on changes in the egg market. Suppose the current price is $3.00 per dozen eggs and the quantity demanded is 2.5 million dozens of egg per day. Suppose price elasticity of demand is constant at 0.8. You are considering reducing the supply, so that the price rises to $3.5 per dozen. Total expenditure on eggs by consumers will rise. Explain your answer carefully.arrow_forwardYour firm receives revenue of $40MM per year from Product A and $90MM per year from Product B. The own- price elasticity of demand for Product A is -1.5. The cross-price elasticity of demand between Product A and Product B is -1.8. Suppose you increase the price of Product A by two percent: a. How much will Product A’s revenue change? b. How much will Product B’s revenue change?arrow_forward
- Suppose that when price is 10, quantity supplied is 20 units, and when the price is 6, the quantity supplied is 12 units. What is the price elasticity of supply? a. 0.5 b. 0.8 c. 1.0 d. 1.5arrow_forwardA life-saving medicine without any close substitutes will tend to have a. a small elasticity of demand. b. a large elasticity of demand. c. a small elasticity of supply. d. a large elasticity of supply.arrow_forwardSuppose you are given a task for analysis the market elasticity for Sport Bike. You found that when the market price of bike is $250 the market demand is 800 bikes, whereas the market supply is 450 bikes. Yet, when the price rises to $280 the market demand is lower to 550 bikes but the market supply is up to 650 bikes. Your tasks are: a) What is price elasticity of the demand for Sport Bike? b) What is price elasticity of the supply for Sport Bike?arrow_forward
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