ECON 2023 Lecture 10: ECON 6
Get access
Related Questions
A mathematical demand function for new Toyotas sold per year for a dealer is as follows Qr = 200 - 0.001Pt + 0.005Pm - 10Pg + 0.01I +0.003A
where
Qt = quantity purchased,
Pt = the average price of Toyotas,
Pm = the average price of mazdas,
Pg = the price of gasoline,
I = per capita income, and
A = dollars spent annually on advertising
PM = $20000 PG = $1.00 I = $15000 A = $10000
1. Use the above to calculate the arc price elasticity of demand between PT = $15000 and PT = $10000
2. What will the estimated quantity sold and total revenue be at each of the above prices (fill in the table below)?
PT |
QT |
Revenue |
$15000 |
||
$10000 |
3. Marketing wants to lower PT from $15000 to $10000. From a revenue viewpoint, explain why you agree or disagree with Marketing. Look at the elasticity calculated in #1 and the behavior of revenues in #2.
4. Calculate the point price elasticity of demand, given that PT = $12500 and QT = 345. Compare the results with the answer to #1. If the results are the same, why does this make sense? If the results differ, why does this make sense? The formula is:
5. Calculate the point cross-price elasticity of demand between gasoline price (PG) and Toyota demand. Assume the OPEC lowered petroleum production quotas and caused the price of gasoline to triple to PG = $3.00. Calculate a new QT for PG = $3.00 and PT = $15000. Other variables and their values are given at the top, before question #1. Explain what this elasticity value implies for the responsiveness of the demand for Toyotas is relative to the price of gasoline?