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. ...

... While calculating the substitution effect we are assuming ... the total cost function and then calculates the elasticity ... 2.2 Calculate the elasticity of total cost ...

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

... when between 2400 and 3000 pounds are fed MP=Change in output of milk/Change in Grain ... Solution depicts the steps to calculate average and marginal product ...

...Calculating MC * MC=change in TC/change in Q ... Solution describes the steps to calculate TVC, TFC, TC, AFC, ATC, AVC and MC for different output levels in the ...

Calculating ATC, AVC, AFC and MC at a given level ... 5/5=$1 Marginal Cost=change in TC/change in output... The solution describes the steps to calculate ATC, AVC, AFC ...

...Calculate the magnitude of the exogenous change in aggregate demand that is ... Be clear about the form of the multiplier and why it changes. See attached. ...

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

... 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...