Question 2 Impact of price discount on revenue A plant nursery is renowned for its range of exotic plants, which are grown within glasshouses prior to sale. One year, one particular plant species does really well in the greenhouses - so well that the nursery is left with an over-supply of trees. To clear the excess stock, the nursery reduces the price of trees by $7.50 per customer. The supply and demand equations are given by Demand Equation: p = 120-609 Supply Equation: p = 0.00008q2 + 12bq + 24 where is the number of customers (in hundreds per year); p is the price of a tree in dollars. a and bare coefficients to be chosen below. Your task is to determine the impact of the $7.50 price reduction on revenue. Steps to complete the investigation 1. Select two random numbers for a and b between 0.1 and 0.9 inclusive. Find the equilibrium price and quantity algebraically, without the price decrease. 3. Update the demand equation to include the $7.50 price decrease. Use algebra to find the new equilibrium price and quantity. 5. Use Excel to graph on the same set of axes, the original supply and demand equations (from part 1) and the updated demand equation with the proposed price decrease (part 3). Use your results to complete the following summary table. Round answers to two decimal places. 2 4. 6. Before price reduction After price reduction Difference Equilibrium quantity Equilibrium price: consumer pays Equilibrium price: nursery would charge without any price reduction Revenue nursery would receive without any price reduction per year Revenue nursery recelves with the price reduction per year LEAVE THIS CELL BLANK 7. Summarise your findings in 300 words. In your conclusion: a. Discuss the effect of the price reduction on price, quantity and revenue b. Provide advice to the nursery on whether to proceed with the price decrease or not C. Note any assumptions you have made and any limitations of your findings