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.

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...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 ...

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... 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...