1.The Acme Paper Company lowers its price of envelops (1,000 count) from $6 to $5.40.

If its sales increased by 20 percent following the price decrease, what is the elasticity

coefficient?

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2. The demand function for a cola-type soft drink in general is Q = 20 - 2P, where Q

stands for quantity and P stands for price.

a. Calculate point elasticities at price of 5 and 9. Is the demand curve elastic or

inelastic at these points?

b. Calculate arc elasticity at the interval between P = 5 and P = 6

c. At which price would a change in price and quantity result in appropriately no

change in total revenue? Why?

3. ABC Sports, a store that sells various types of sports clothing and other sports items,

is planning to introduce a new design of Arizona Diamondback's baseball caps, A

consultant has estimated the demand curve to be

Q = 2,000 - 100P

Where Q is cap sales and P is price.

a. How many caps could ABC sell at $6 each?

b. How much would the price have to be to sell 1,800 caps?

c. Support ABC were to use the caps as promotion. How many caps could

ABC give away free?

d. At what price would no caps be sold?

e. Calculate the point price elasticity of demand at a price of $6.

Additional Questions

4. The equation for a demand curve has been estimated to be Q = 100 - 10 P + 0.5 Y,

where Q is quantity, P is price, Y is income. Assume P = 7 and Y = 50.

a. Interpret the equation.

b. At a price of 7, what is price elasticity?

c. At an income level of 50, what is income elasticity?

d. Now assume income is 70. What is the price elasticity at P = 8?

5. Mr. Smith has the following demand equation for a certain product: Q = 30 - 2P.

a. At a price of $7, what is the point elasticity?

b. Between prices of $5 and $6, what is the arc elasticity?

c. If the market is made up of 100 individuals with demand curves identical to

Mr. Smith's, what will be the point and arc elasticity for the conditions

specified in part a and b?