I’ve gotten different answers than what some Chegg people have answered and woul
ID: 2441511 • Letter: I
Question
I’ve gotten different answers than what some Chegg people have answered and would like another take/opinion. Name initially with: This function is: Due Please show work in detail ons utilize the multivariate demand function for Toyotas given in C4 on text page 82, PM-S20000 Pc=S1.00 I=S 15000 A-S10000 Qr 200-01PT +.005PM -10PG +.011+.003A 1. Use the above to calculate the arc price elasticity of demand between Pr- $15000 and Pr- $10000. elasticity formula is: The arc 2. Calculate the quantity demanded at each of the above prices and revenue that will result if the quantity is sold (fill in able below) PT S15000 S10000 Revenue 3. Marketing suggests lowering Pr f m S 150 0 t $10000. The size of the elast city 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 qr #2)? dow n wouid increast fw quann ood id a luuv amount Aomet20 hich shoula mae usNGd.oesioml below, aloulate 4. Assurethe Pr = Si 2500 (d make using the point elasticity formula below, calculate the point price elasticity of demand. Is this point elasticity coefficient the same as the arc coefficient in #1? Why does this make sense if the two are the same? If the two differ, does this make sense and why? The formula is: At PT 12900, RT 345 aP e 5. 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. Calculate a new or orPa-3,0° and, pt-15000. 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: 6. Calculate the Income elasticity of demand for Toyotas with I $15000, P-$10000, and other variables and their values as given at the top, before question #1 Does this elasticity indicate that the demand for Toyotas is relatively responsive to changes in income (1)? Explain why or why not. The formula is: or er Elasticity4.doc June 27, 2016
Explanation / Answer
. 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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