Question

6. Exercise 5.6

The economic analysis division of Mapco Enterprises has estimated the demand function for its line of weed trimmers as

QD=18,000+0.4N−350PM+90PsQD=18,000+0.4N−350PM+90Ps

where N is the number of new homes completed in the primary market area, PMPM is the price of the Mapco trimmer, and PsPs is the price of its competitor's Surefire trimmer.

In 2017, 1,500 new homes are expected to be completed in the primary market area. Mapco plans to charge $65.00 for its trimmer. The Surefire trimmer is expected to sell for $65.00.

Under these conditions, the sales forecast for 2017 is =1,700,1,850, or 1,375 .

If its competitor cuts the price of the Surefire trimmer to $60.00, Mapco's sales will =increase, or decrease

by = 600, 550, or 450

.

A 30% reduction in the number of new homes completed would =raise or lower

Mapco's sales by =180, 212, 144

. (Note: Ignore the impact of the price cut of the Surefire trimmer.)

Answer 1

The quantity demanded is given to be .

For the given values, the sale forecast would be as or .

For the new price of Surefire, we have the sale forecast as or . The sale will decrease by 1700-1250 or 450 units.

A 30% reduction if 1500 homes would mean the new number of homes would be or . For this value, the sale forecast would be as or . The impact would be that Maoco's sales are would decrease by 1700-1520 or 180 units.