Utilize the multivariate demand function for Brand X washing machines given in C2, page 81, initially with:
PY= $300PL= $0.30I = $40000A = $200000
This function is:
QX= 197000 -100PX+50PY+.025I +.02A + 10000PL
Utilize the multivariate demand function for Brand X washing machines given in C2, page 81, initially with: Py = $300 PL =$0.30 I= $40000 A = $200000 This function is: Qx =197000 -100Px +50Py +.0251 +.02A + 10000PL 1. Use the above to calculate the arc price elasticity of demand between Px = $400 and Px = $350. The arc clasticity formula is: E 4Q P +P AP Q, +Q A. Calculate the quantity demanded at each of the above prices and revenue that will result if the quantity is sold (fill in table below) Px Ox Revenue $400 $350 B. Marketing suggests lowering Px from $400 to $350. The size of the clasticity coefficient in #1 should tell you what is likely to happen to revenue. Explain why this is (or is not) a good marketing suggestion from a revenue viewpoint (note: your answer in #1 and the calculations in #2 should be giving the same message). If the implications in #1 and #2 differ, does the difference make sense (or did you make a mistake in #1 or #2)? C. Calculate the point price elasticity of demand for brand X washing machines at Px= $400 (which should make Qx= 180000). Does this elasticity value indicate that the demand for brand X washing machines is relatively responsive to changes in price of the machines? Explain why or why not. The formula is: Ep = 0Ox . Px aPx Qx D. Calculate the point "self-service" laundry cross-price price elasticity of demand at PL = $0.30. Use Q% corresponding to Px = $400 with other variables and their values as given at the top, before question #1. Does this elasticity imply that the demand for Brand X washers is relatively responsive to changes in (PL)? Explain why or why not. The formula is: Ext =ap, ex E. Calculate the cross-price elasticity of demand for Brand X washers with respect to the price (Py) of Brand Y washers. Assume Px = $400 and that other variables and their values are given at the top before question #1. What does this clasticity imply about the relative responsiveness of the demand for Brand X washers with respect to the price (PY) of Brand Y washers? Explain. The formula is: EXY Fap, Ox
