Question

b. If ep = -.8, initial cost 200, should Molto Delizioso raise prices, lower prices, or...

b. If ep = -.8, initial cost 200, should Molto Delizioso raise prices, lower prices, or keep them the same? Explain.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Increase price

A profit is maximum at MR=MC

MC cannot be negative so the firm can maximum profit if the firm has positive marginal revenue.

marginal revenue is positive when the demand is elastic. an MR=0 when e=-1 and MR<0 when -1<e<0

A price and elasticity have a positive relationship to the increase in the price increases elasticity.

the firm should increase price up to unit elastic demand to maximize revenue.

Also, it should increase the price up to pint MR=MC to maximize profit.

The given cost is positive so the firm should increase price u to the demand is elastic. (MR=MC level of output)

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Should you raise or lower the prices for two goods, one of which you acquired via...
Should you raise or lower the prices for two goods, one of which you acquired via a merger, based on whether they are complements or substitutes.
Firms should lower the prices on their goods​ a. ​If the demand for the product is...
Firms should lower the prices on their goods​ a. ​If the demand for the product is elastic b. ​If it acquires a firm selling a complement good c. ​If it acquires a firm selling a substitute good d. ​Both a and b
Suppose that a monopolist calculates that at its present output marginal revenue is $10.00 and marginal...
Suppose that a monopolist calculates that at its present output marginal revenue is $10.00 and marginal cost is $15.00. In order to maximize profits this firm should a. keep price the same and raise output. b. raise price and lower output. c. keep price the same and lower output. d. lower price and raise output.
) Explain and Graph an event which leads to higher prices and lower quantity produced of...
) Explain and Graph an event which leads to higher prices and lower quantity produced of a certain good. 2) Explain and graph an event which leads to lower prices and lower quantity produced of a certain good. 3) Explain and graph an event which leads to lower prices and higher quantity produced of a certain good. 4) Explain and graph an event that leads to higher prices and a higher quantity produced of a certain good. Chapter 11- 1)...
Assume the firm’s debt−equity ratio is 200%. The project under consideration needs $600,000 initial cost. The...
Assume the firm’s debt−equity ratio is 200%. The project under consideration needs $600,000 initial cost. The firm can raise the fund by issuing common stock and debt. The cost of equity is 21%. The company can raise new debt at the cost of 9%. The flotation cost rate associated with equity is 9%, and the flotation cost rate associated with debt is 3%. This project will generate constant after-tax cash flows of $318,000 per year forever. Assume the tax rate...
b) A company makes an initial public offering of shares to raise $220 million, at an...
b) A company makes an initial public offering of shares to raise $220 million, at an offer price of $5.30 per share. The issue is underwritten at $5.00. The costs of preparing the prospectus, legal fees, ASIC registration and other administrative costs add up to $800,000. If the firms’ share price closes at $6.40 on its first day of trade. What is the total cost of the IPO?
You can continue to use your less efficient old machine with an initial cost zero and...
You can continue to use your less efficient old machine with an initial cost zero and a maintenance cost of $8,960 annually for the next five years. Alternatively, you can purchase a more efficient new machine for $12,000 initial cost today, plus $5,000 annual maintenance with the same 5 years life. At a cost of capital of 15%, you should: A. Buy the new machine and save $380 in equivalent annual annuity. B. Keep the old machine and save $380...
A B C Initial cost $1500 $900 $1200 Annual benefit $800 $200 $180 Salvage value $500...
A B C Initial cost $1500 $900 $1200 Annual benefit $800 $200 $180 Salvage value $500 $900 $0 Life in years 2 3 infinite MARR 10% 10% 10% Assume that alt. A will be needed for 6 years. The NPW of alt. A is _____. $1100 $1342 $600 $757
True or False (T/F) 2. The payback calculation divides the initial cost of the investment by...
True or False (T/F) 2. The payback calculation divides the initial cost of the investment by incremental annual cash flow. 3. The higher the risk, the more lenders and investors want to be compensated for their capital, and the lower the cost of capital. 4. An advantage of the IRR method is that it allows managers to compare deals with different sales prices and costs. 5. NPV and IRR calculations most of the time provide the same accept or reject...
Southern Alliance Company needs to raise $25 million to start a new project and will raise...
Southern Alliance Company needs to raise $25 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 50 percent common stock, 8 percent preferred stock, and 42 percent debt. Flotation costs for issuing new common stock are 11 percent, for new preferred stock, 6 percent, and for new debt, 6 percent. What is the true initial...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT