- XYZ corporation finds that the price elasticity of demand for
its shoes is 2.
- To Increase total revenue what should the firm do? Explain. Answer to 1(a)
- Remember that revenues are not the same as profits. Ignoring possible
responses from competitors, would it be profitable for the firm
to do as you suggested in part (a)? Answer to 1(b)
- What would your answer to part (a) be if the price elasticity
of demand for its shoes is 1/2? Explain. Answer to 1(c)
- Ignoring possible responses from competitors, would it be profitable
for the firm to do as you suggested in part (a)? Answer to 1(d)
- Suppose you read in the Wall Street Journal that manufacturers of large-screen televisions (35 inches and
larger) and coffee growers are both planning to lower prices.
What change should each expect in their total revenues? Why? Explain.
Answer to 2
- Suppose you learn that the own price elasticity of demand for
cotton socks is 2 and that the average price of cotton socks is
expected to increase from $5 to $5.50 per pair. Suppose that 1000
pairs per day are being sold before the price change. How many
do you expect to be sold after the price change? Answer to 3
- Suppose that when the price of broccoli rose from $2 per head
to $2.10 per head sales of cauliflower fell from 100 to 90 heads
per week. What is the cross price elasticity between broccoli
and cauliflower? Are they complements or substitutes? Answer to 4
- For each of the goods mentioned below, indicate in what range
of values you would expect the income elasticity to fall. Explain
your reasoning.
- Toothpaste. Answer to 5(a)
- Sports Cars. Answer to 5(b)
- Ramen Noodles. Answer to 5(c)
© 1995-1998 EconWeb - All Rights Reserved