ELASTICITY EXERCISE Name initially with: This funetion is: funetPlease show work
ID: 2440820 • Letter: E
Question
ELASTICITY EXERCISE Name initially with: This funetion is: funetPlease show work in detail function for Toyotas given in C4 on text page 82, All questions utilize the multivariate demand function for Toyotas given Due PM-S20000 PG-31.00 1 = S15000 O 200-01P +005PM-10PG +.011+.003A 1. Use the above to calculate the ars price elasticity of demand between Pt elasticity formula is clasticity of demand between Pr $15000 and Pr- $10000. The arc 2. Calculate the quantity demanded at each of the above prices and revenue t hat will result if the quantity is sold (fill in table below) Py $15000 S10000 Revenue 3. Marketing suggests lowering Pt from $15000 to $10000. The size of the elasticity coefficient in #I should tell you what is likely to happen to revenue. Explain why this is (or is not) a good marketing suggestion from a viewpoint (note: your answer in #1 and the calculations in #2 should be giving the same message). If he implications in #1 and #2 differ, does the difference make sense (or dd you make m ake is n r ent revenue 4. Assume the Pr-$12500 (which should make Q-345). Now, using the point elasticity formula below, calculate fficient thesarme as the arc coefficient in #17 Why the point price elasticity of demand. Is this point elasticity coe does this make sense if the two are the same? If the two differ, does this make sense and why? The formula is: Calculate the point gasoline cross-price elasticity between (Po) and Toyota demand (Qr). Assume the OPEC lowered petroleum production quotas and caused the price of gasoline to increase to Po $3.00. Calculats a nevw or orPa-53 and Pr. SO Other variables and their values are given at the top, before question #1 Does this elasticity indicate that the demand for Toyotas is relatively responsive to changes in the price of gasoline (PO)? Explain why or why not. The formula is: 5. TG other variables and their values as given at the top, before question#1 Does this elasticity indicate that the demand responsive to changes in income (0)? Explain why or why not. The formula is: 6. Calculate the Income elasticity of demand for Toyotas with I- $15000, Pr $10000 and Elasticity4.doc June 27, 2016Explanation / Answer
1. At PT= 15000, QT=200-(.01*15000)+(.005*20000)-(10*1)+(.01*15000)+(.003*10000)=320
At PT= 10000, QT= 200-(.01*10000)+(.005*20000)-(10*1)+(.01*15000)+(.003*10000)= 370
Change in Q= 320-370= -50
Change in P= 15000-10000= $5,000
Ep=(-50/5000)*((15000+10000)/(320+370))= -0.36
2. Revenue= P*Q
At P=15000, and Q= 320, Revenue = 15000*320= $4,800,000
At P=10000, and Q= 370, Revenue = 10000*370= $3,700,000
3. Lowering the price down would though increase the quantity demanded, but the revenue would go down by a large amount. Thus, reducing the price is not a good idea.
4. At PT= 12500, QT= 345
Change in Q= 320-345= -25
Change in P= 2500
Ep= (-25/2500)*(15000/320)=-.046 or -.05
No, the elasticities in both the parts are different. In fact the arc elasticity was as high as five times the point elasticity. As the point elasticity considers the change the demand to be too little while taking the limiting case of the arc elasticity thus it does not take into account the changing figures of demand. Hence, arc elasticity, in this case, is better is use.
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