Question

Question One:

The demand curve for product X is given as Qx = 180-150Px +60Py +3A.

Where Px =4, Py $8, and A=20

  

A). Calculate the price elasticity of demand for x. Will a decrease in price increases total revenue?

B). Calculate the cross-price elasticity of demand. Are X and Y are substitute or complementary goods?  

Question Two:

A minor league baseball team is trying to predict ticket sales for the upcoming season and considering changing ticket price.

1. The elasticity of ticket sales with respect to size of local population is estimated to be 0.7. Briefly explain what this number means. If the local population increases from 60,000 to 61,500 what is the predicted ticket sales?  

2. Currently an average fan is paying $10. The price elasticity of demand for tickets is -0.6. Management is thinking to raise the price to $11. Compute the predicted percentage in tickets sold. Would you expect ticket revenue to rise or fall?    

Question Three

Management of McPablo’s Food Shops has completed a study of weekly demand for its “old-fashioned” tacos in 53 regional markets. The study revealed the demand function of

Q = 400 – 1,200P + 0.8A + 55Pop + 800 PL

Where Q is the number of tacos sold per store per week. A is the level of local advertising expenditure (in dollars), Pop denotes the local population (in thousands), and PL is the average taco price of local competitors. For the typical McPablo’s outlet, P = $1.5 , A = $1,000, Pop = 40, and PL = $1.  

A Estimate the weekly sales for the typical McPablo’s outlet

B What is the current price elasticity for tacos? What is the advertising elasticity?

C Should Mcpablo raise its taco price? Why or why not?  

Answer 1