Sailright Inc. manufactures and sells sailboards. Management believes that the price elasticity of demand is -3.0. Currently, boards are priced at $500 and the quantity demanded is 10,000 per year.

A. If the price is increased to $600, how many sailboards will the company be able to sell each year?

B. The cross-price elasticity of demand between Sailright and its closest competitor is +2.25 and income elasticity of demand is +1.5. If income increases by 5% and its competitor reduces its prices by 10%, how much would Sailright have to change its prices to keep its total sales unchanged? Assume that price elasticity of demand is still -3.0.

Solution Preview

A. If the price is increased to $600, how many sailboards will the company be able to sell each year?

I will use mid point formula for my calculations.

Change in prices=(600-500)/((600+500)/2)= 0.181818
Let new sales be Q
Change in sales=(Q-10000)/((Q+10000)/2)
Change in sales=Price elasticity of demand*change in ...

Solution Summary

Solution calculates the change in output in response to the given variations.

Calculating the Equilibrium Output Level. ... due to change in taxes)=-16.67 Net change in equilibrium ... level of output=2400+50= 2450 e) Calculate the equilibrium ...

... describes the steps and formulas for calculating maginal product ... b. Calculate the average product of labor. ... of =(Change in s workers output/Change 250.0 in no. ...

... Cost=Change in TC for producing 1 additional Unit=(change in Total Cost/change in output). Solution describes the steps and formulas for calculating total fixed ...

... Solution describes the steps for calculating variable costs ... a. Calculate the marginal and average variable ... of labor Average Variable Product Change in Output...

... which tables all the different variables and how to calculate each. ... Marginal Revenue is calculated as the change in total revenue ... Try to calculate manually. ...

...Calculates the growth, price-recovery, and productivity ... To calculate productivity changes in dollar terms Dollar amount= % change in productivity X New ...

... I have mentioned the formula for calculating these costs. ... How to Understand and Calculate Cost Measures. ... The Marginal Costs can be calculated by dividing the ...

... b. Calculate the deadweight loss from having the monopolist produce, rather than a ... 22 8 176 -104 22 ** Marginal Revenue=change in TR/Change in output...

... It also calculates associated profit with optimal output level ... the table in exercise A to calculate marginal revenue ... Marginal Cost=change in TC/Change in output...

... of the MPC, it is easy to calculate the multiplier ... c. By assuming there is no change in the level of ... between savings and planned investment, it will be changed. ...