Question
ELASTICITY EXERCISE Name ___________________________ Due _________ Please show work in detail. All questions utilize the multivariate demand function for Brand X washing machines given in
ELASTICITY EXERCISE
Name ___________________________ Due _________ Please show work in detail.
All questions utilize the multivariate demand function for Brand X washing machines given in C2, page 81, initially with:
PY = $300PL = $1.50I = $40000A = $200000
This function is:
QX = 197000 -100PX +50PY +.025I +.02A + 10000PL
1.Use the above to calculate the arc price elasticity of demand between PX = $250 and PX = $200.The arc elasticity formula is:
2.Calculate the quantity demanded at each of the above prices and revenue that will result if the quantity is sold (fill in table below).
PX
QX
Revenue
$250
$200
3.Marketing suggests lowering PX from $250 to $200.The size of the elasticity coefficient in #1 should tell you what is likely to happen to revenue.Explain why this is (or is not) a good marketing suggestion from a revenue viewpoint (note: your answer in #1 and the calculations in #2 should be giving the same message).If the implications in #1 and #2 differ, does the difference make sense (or did you make a mistake in #1 or #2)?
4.Calculate the point price elasticity of demand at PX = $250 (which should make QX = 207000).Does this elasticity value indicate that the demand for Brand X washing machines is relatively responsive to changes in the price of these machines?Explain why or why not.The formula is:
5.Calculate the point"self-service" laundry cross-price elasticity of demand at PL = $1.50.Use Qx corresponding toPX = $250 with other variables and their values as given at the top, before question #1.Does this elasticity imply that the demand for Brand X washers is relatively responsive to changes in (PL)?Explain why or why not.The formula is:
6.Calculate the point advertising elasticity of demand at A = $200,000.Use QX corresponding to PX = $200 with other variables and their values given at the top before question #1.What does this elasticity imply about the relative responsiveness of the demand for Brand X washers with respect to advertising expenditures (A)?Explain.The formula is:
Elasticity9.docx 091419
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started