Q2. The demand for the Bus 207 textbook (QX) is given by the following equation:
QX = 100 - 5.0 PX + 1.5 PY - 2 PZ + 4.7 AX.
where PX = the price of the textbook, currently selling at $72.00
PZ = the price of the Study guide accompanying the text, selling at $30.00
AX = Advertising for the text, measured in units, and currently at 100
PY = the price of another managerial economics textbook, currently selling at $60.00
(a) The revenues received by an author are frequently set at 15% of the publisher's total revenue. Use price elasticity to determine whether from the author's point of view, the textbook been under priced or overpriced?
(b) By how much would the demand for the textbook change if advertising were increased by 2%?
(c) What is the optimal price of the textbook from the author's point of view?
(d) If the cost per unit of good X to the publisher is $40.00 and the publisher behaves as a monopolist, how many textbooks will be sold and at what price?
(f) As the student consumer, whose interest would you like to see prevail, the author or the publisher?
Q5. Desi Pizza, Ltd, provides delivery and carryout service to the city of Surrey and surrounding areas. An analysis of the daily demand for its super-supremo-wombo-combo paneer-dripping pizzas reveals the following demand equation:
Qx = 2,000 - 100Px - 2.5PS + 0.01CSP + 500S
where Qx is the quantity measured by the number of pizzas per day, Px is the price ($), PS is a price index for soda pop, CSP is the college student population and S, a binary or dummy variable, equals 1 on Friday, Saturday and Sunday and zero otherwise.
Currently Px = $10, PS = 100, and CSP = 25,000
(a) Calculate the quantity demanded of pizzas on Tuesdays and Fridays.
(b) Calculate the price elasticity of demand for Desi pizzas on theses two days.
(c) If Desi Pizza, Ltd is primarily interested in maximizing revenue, should they charge the same price everyday of the week? If not, what prices should they charge?
(d) If the cost per pizza is $5.00 and Desi Pizza, Ltd., behaves as a profit-maximizing monopolist, should they charge the same price everyday of the week? If not, what prices should they charge?
Q6. The demand for good X is given by the following equation:
QX = 1.6 PX-1.5 I0.3 PZ0.2 PY
where PX, PY, and PZ are the prices of X, Y, and Z respectively, and I is per capita income.
(a) By how much must per capita income change if there is a 2% increase in the price of X and the goal is to keep QX constant?
(b) Should the price of X be increased or decreased to maximize revenue?
(c) Are goods X and Y gross substitutes or complements?
Q7. The demand for good X is given by the following equation:
QX = 10 PX-2.4 PY I1.2 AX 0.001 AY-0.003
where PX and PY, and PZ are the prices of X and Y, I is per capita income, AX is advertising on good X, and AY is advertising on good Y.
(a) Should the price of X be increased or decreased if the firm is interested in maximizing revenue?
(b) Are goods X and Y gross substitutes or complements?
(c) By how much must the price of X change if per capita income decreases by 4% and the goal is to keep QX constant?
(d) Calculate the elasticity of demand for good X with respect to advertising on good X. Interpret your answer. Can you tell whether the firm is spending too much or too little on advertising?
(e) If the manufacturer of good Y stops advertising completely, what would be the impact on demand for good X according to this demand equation?
Q8. The demand for imported Honda automobiles is given by the following equation:
QH = 1200 - 20PH + 10PC + 200PG
The price of Hondas, PH = 60, the price of Chevrolets, PC = 70, and the price of gasoline, PG = 1.5.
(a) Calculate the point elasticity of demand for Hondas with respect to its own price, the price of Chevrolets, and the price of gasoline.
(b) For each of Chevrolets and gasoline, is it a substitute or complement for Hondas?
(c) Calculate consumer surplus at the revenue-maximizing price for Hondas.
(d) If the cost per Honda is 50 and the Honda importing agency behaves as a monopolist, how many will be imported and at what price will they sell?
(e) Redo part (d) on the assumption gasoline price rises to PG = 2.5.