Please answer 1,2,6 and 7
class-action lawsuits that heaped penalties amounting to several hundred billion dollars on the tobacco industry. In spite of the huge penalties, The Wall Street Journal reported, "The damage (to cigarette makers) is generally under control." What action do you sup- pose the cigarette companies took to avoid bankruptcy? Why did this action succeed? 6. The price elasticity of demand for imported whiskey is estimated to be -0.20 over a wide interval of prices. The federal government decides to raise the import tariff on foreign whiskey, causing its price to rise by 20 percent. Will sales of whiskey rise or fall, and by what percentage amount? 7. As manager of Citywide Racquet Club, you must determine the best price to charge for locker rentals. Assume that the (marginal) cost of providing lockers is 0. The monthly demand for lockers is estimated to be Q = 100 - 2P Milo Geyelin and Gordon Fairclough, "Tobacco Industry Has Resources For Coping With Huge Jury Award" The Wall Street Journal, July 17, 2000.NCE' CHAPTER 6 Elasticity and Demand IED PROBLEMS 1. In an article about the financial problems of USA Today, Newsweek reported that the paper was losing about $20 million a year. A Wall Street analyst said that the paper should raise its price from 50 cents to 75 cents, which he estimated would bring in an additional $65 million a year. The paper's publisher rejected the idea, saying that circus lation could drop sharply after a price increase, citing The Wall Street Journal's experi- ence after it increased its price to 75 cents. What implicit assumptions are the publisher and the analyst making about price elasticity? 2. Assume that the demand for cosmetic or plastic surgery is price inelastic. Are the fol- lowing statements true or false? Explain. a. When the price of plastic surgery increases, the number of operations decreases. b. The percentage change in the price of plastic surgery is less than the percentage change in quantity demanded. c. Changes in the price of plastic surgery do not affect the number of operations. d. Quantity demanded is quite responsive to changes in price. e. If more plastic surgery is performed, expenditures on plastic surgery will decrease. f. The marginal revenue of another operation is negative. 3. What effect, if any, does each of the following events have on the price elasticity ofCHAPTER 6 Elasticity and Demand 233 where P is the monthly rental price and Q is the number of lockers rented per month. a. What price would you charge? b. How many lockers are rented monthly at this price? c. Explain why you chose this price. 8. The demand curve for haircuts at Terry Bernard's Hair Design is
