The Welsh Kitchen Design Company sells its deluxe food processor for 150/unit. Company experience suggests that both price and consumer incomes affect sales, with an estimated price elasticity of demand of -3.0, whilst income elasticity is estimated at 4.0. In 1986 the company sold one million units, whilst total consumer disposable income was 600 billion. Estimated consumer disposable income for 1987 is 650 billion. (i) Assuming price remains the same in 1987, estimate total sales revenue.

(ii) If 1988 consumer income is expected to remain constant at 650 billion, whilst price is expected to fall by 25, estimate sales revenue in 1988. (iii) Estimate sales revenue in 1988 if consumer income rises by 10% between 1987/88, whilst price falls by 15%. (iv) Use the information above to estimate demand as a linear function of price and income. 8. 'Despite the theoretical advantages of the discounting procedure, capital investment was either justified in terms of some "need to have" case presented by lower management or on the basis of some elementary payback period calculations." Discuss this conclusion from an empirical survey of investment decision-making.

Evaluate the operational utility of demand elasticity estimates, and outline any interpretational difficulties in the use of such estimates. (b) The annual demand function for a particular motor car is estimated as: D = 16000-10P/3+ Y2/1000 where D =annual demand, P =price in 's and Y =average disposable income. (i) Given that the retail price next year will be 12 000, whilst average disposable income is expected to be 8000, estimate next year's annual demand. If the manufacturer receives 80% of the retail price for each car sold, estimate the manufacturer's revenue next year. (ii) Find the retail price to maximise manufacturer's revenue next year. (iii) If the marginal cost per car is estimated to be 6000, find the price to maximise profit next year. (iv) In the subsequent year the retail price is expected to rise to 13 000, whilst incomes should increase by 5%. Estimate demand and manufacturer's revenue for that year, and use this information to estimate the price and income demand elasticities.