Imagine you are the marketing manager of a firm that produces three goods: X, Y and Z. The price elasticity of demand for the products is as follows: X is 1.2; Y is 1.00; Z is 0.75. You are made aware that the firm is experiencing significant cash flow issues and needs to increase total revenue. Given the above elasticity estimates, what would be your pricing strategy for each product? Complete the table below to show your strategy: Elasticity along Suggested price Impact on total the demand curve change revenue Product (i.e. elastic, (increase, decrease, no (increase, decrease, inelastic, unitary change) unchanged) elastic) N Grade: 190 Page 1 of 9QUESTION 2 (25 marks) Consider the market for gasoline in Elgin County, Ontario. (Note: all units of quantity and price are in thousands of litres and dollars per litre, respectively). Suppose the demand for gasoline is given by: Qa = 2000 - 200P Consider the following information about the supply curve estimated by a local marketing research company: . For every increase in price by $1 per litre, quantity supplied (Qs), increases by 100 thousand litres. . AND, when the price is $1/litre, 900 thousand litres of gasoline are supplied to Elgin County. a) (3 marks) Given the above information, find the supply function (i.e., determine a and b in Qs = a + bP. b) (3 marks) In the space provided below, plot the demand and supply curve and make sure you label the curves and clearly write the intercepts on both axes. Price $10 $9 SS so 0 500 1000 1500 2000 Quantity c) (3 marks) Find the equilibrium price and quantity algebraically and indicate it in your diagram. Show your work. PE = $ QE = $ Page 2 of 9d) (4 marks) Indicate in your diagram the area of consumer and producer surplus. Next, calculate the value of consumer and producer surplus. Show your work. Note: you will need to use the formula for the area of triangle and the formula for the area of a rectangle. e) (2 marks) Suppose that one of the pipelines that supplies gasoline to the Elgin is damaged and causes a gasoline shortage. Engineers have determined that pipeline capacity is reduced by 300 thousand litres - meaning that, at every price level, there are 300 thousand fewer litres of gasoline supplied to Elgin County. Which curve (demand or supply) is shifted? Which direction (leftward or rightward)? f) (4 marks) Determine the equation of the shifted curve you indicated in Part e. g) (2 marks) In your diagram above, draw the demand and supply curve after the pipeline damage and clearly compare the shifts. h) (4 marks) Determine the equilibrium price and quantity (algebraically) and calculate the value of consumer and producer surplus after the pipeline damage. Page 3 of 9