Distinctive Designs, Inc., imports and distributes dress and sports watches. At the end of the company's fiscal year, brand manager Charlie Pace has asked you to evaluate sales of the sports watch line using the following data:

In particular, Pace has asked you to estimate relevant demand elasticity’s. Remember that to estimate the required elasticity’s, you should consider months only when the other important factors considered in the preceding table have not changed. Also note that by restricting your analysis to consecutive months, changes in any additional factors not explicitly included in the analysis are less likely to affect estimated elasticity’s. Finally, the average arc elasticity of demand for each factor is simply the average of monthly elasticity’s calculated during the past year.

A. Indicate whether there was or was not a change in each respective independent variable for each month pair during the past year.

B. Calculate and interpret the average advertising arc elasticity of demand for sports watches.
C. Calculate and interpret the average arc price elasticity of demand for sports watches.
D. Calculate and interpret the average arc cross-price elasticity of demand between sports and dresswatches.

Transcribed Image Text:

Number of Sports Watches Sold Sports Watch Advertising Expenditures Sports Watch Price, P Dress Watch Month July August Septembe 4,500 5,500 4,500 $10,000 10,000 9,200 Price, PD 50 50 50 26 24 October November December January February March April May 3.500 5,000 15,000 5,000 4.000 5,500 6,000 4.000 5,000 9,200 9,750 9.750 8,350 7.850 9,500 8.500 8,500 8,500 24 25 20 25 25 25 24 26 26 46 50 50 50 50 51 51 57 une Sports Watch Advertising Expenditures, A Sports Watch Price, P Dress Watch Price, Pp Month-Pair July-August August-September September-October October-November November Decemben December-January January-February February-March March-April April-May May-June