The demand for Penn's Oil motor oil can be characterized by the following point elasticities: price elasticity
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Question:
The demand for Penn's Oil motor oil can be characterized by the following point elasticities: price elasticity = 0.75, cross-price elasticity with Value Lean motor oil = 2.0, and income elasticity = +1.5.
Indicate whether each of the following statements is true or false and explain your reason
- A price increase for Penn's Oil will decrease both the number of units demanded and the total revenue of sellers.
- The cross-price elasticity indicates that a 2% increase in the price of Value Lean will cause a 4% increase in Penn's Oil demand.
- Demand for Penn's Oil is price elastic and the motor oil is a cyclical, normal good.
- Rising Value Lean prices will definitely increase revenues received by manufacturers of both brands of oil.
- A 2% price reduction for Penn's Oil would be necessary to overcome the effects of a 1 % decline in income.
6. Last month, Tahoe Dave, LLC. increased the price of backcountry skis by 1%. In response, sales dropped by 5%.
Calculate the point price elasticity of demand for skis.
Calculate the optimal price for skis if marginal cost is $350 per unit.
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