Question
, The question I have is for Part C with the Profit Maximization please show your work and math for this problem How does Lowering
- , The question I have is for Part C with the Profit Maximization please show your work and math for this problem
- How does Lowering the Price of the Apple watch to $238 (note the original price of $349)
- Calculate the Point Price Elasticity of Demand for the AppleWatch (this requires you to show your work, calculate the number and explain the results of the Price Elasticity of Demandin effect, is it elastic or inelastic and whyyou should use the original price and the new price of $238)? (6 Points)
QAW = -150,000 - 2400PAW + 1520PGearS + 1200Pebble - 1200PAPhone6 + 44A
PAW = $349 QAW = 177,200 PGearS = $380Ppebble = $220 PIPhone6 = $299 Advertising Expense = $15,500
To calculate the point price elasticity of demand for the AppleWatch, we need to use the following formula:
Point Price Elasticity of Demand = (PAW/QAW) (dQAW/dPAW)
We know that the original price of the AppleWatch was $349 and the new price is $238. Therefore, the percentage change in price is:
% change in Price = ((New Price - Old Price) / Old Price) x 100 % change in Price = (($238 - $349) / $349) x 100 % change in Price = -31.79%
To calculate the percentage change in quantity demanded, we need to substitute the given values in the demand function:
QAW = -150,000 - 2400PAW + 1520PGearS + 1200Pebble - 1200PAPhone6 + 44A QAW(Old) = -150,000 - 2400($349) + 1520($380) + 1200($220) - 1200($299) + 44($15,500) QAW(Old) = 177,200
QAW(New) = -150,000 - 2400($238) + 1520($380) + 1200($220) - 1200($299) + 44($15,500) QAW(New) = 191,800
% change in Quantity = ((New Quantity - Old Quantity) / Old Quantity) x 100 % change in Quantity = ((191,800 - 177,200) / 177,200) x 100 % change in Quantity = 8.24%
Now, we can calculate the point price elasticity of demand as follows:
Point Price Elasticity of Demand = (PAW/QAW) (dQAW/dPAW) Point Price Elasticity of Demand = (100-120/120)x -31.8% = -1.59
Therefore, the point price elasticity of demand for the AppleWatch is approximately-1.59. Since the absolute value of the point price elasticity of demand is greater than 1, the demand for Apple Watches is elastic. This means that a decrease in price will lead to a greater than proportional increase in the quantity demanded.
- Calculate this price reduction on Total Revenue (what is the initial total revenue when the price was $349).Noteuse the demand function to calculate the quantity demanded. (4 Points)
QAW(Old) = -150,000 - 2400($349) + 1520($380) + 1200($220) - 1200($299) + 44($15,500) = 177,200
Total Revenue = Price x Quantity Demanded Total Revenue = $349 x 177,200 Total Revenue = $61,732,800
QAW(New) = -150,000 - 2400($238) + 1520($380) + 1200($220) - 1200($299) + 44($15,500) = 191,800
Total Revenue = Price x Quantity Demanded Total Revenue = $238 x 191,800 Total Revenue = $45,676,400
Therefore, the price reduction to $238 results in a new total revenue of $45,676,400. This represents a decrease of $16,056,400 from the initial total revenue of $61,732,800.
- Given a Variable Cost that is provided on Page 5 of the lecture Powerpoint (and not including the sunk/fixed costs) what is the profit maximizing output given a price of $349?(3 points) For this question, the price of $349 is given, the variable cost of 178 per unit is also given. First determine the optimal level of output ( Quantity) and then use TR-TC= Profit to solve
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