Price elasticity of demad, determinants of elasticity

#1: (Categories of Price Elasticity of Demand) for each of the following absolute values of price elasticity of demand, indicate whether demand is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic. In addition, determine what would happen to total revenue if a firm raised its price in each elasticity range identified.
a. ED = 2.5
b. ED = 1.0
c. ED = 8
d. ED = 0.8

#4: (Determinants of Price Elasticity) Why is the price elasticity of demand for Coca-Cola greater than the price elasticity of demand for soft drinks generally?

#3: (Alternative Measures of Profit) Calculate the accounting profit or loss as well as the economic profit or loss in each of the following situations:
a. A firm with total revenues of $150 million, explicit cost of $90 million, and implicit costs of $30 million

b. A firm with total revenue of $125 million, explicit costs of $100 million, and implicit costs of $30 million

c. A firm with total revenue of $100 million, explicit costs of $90 million, and implicit cost of $20 million

d. A firm with total revenues of $250,000, explicit costs of $275,000, and implicit costs of $50,000

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Solution:

#1:For each of the following absolute values of price elasticity of demand, indicate whether demand is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic. In addition, determine what would happen to total revenue if a firm raised its price in each elasticity range identified.

a. ED = 2.5
Absolute value of price elasticity of demand is greater than 1, it is elastic. In this case percentage change in quantity is higher than corresponding percentage change in price. So, total revenue will decrease as a result of price increase.

b. ED = 1.0
Absolute value of price elasticity of demand is equal to 1, it is unit elastic. In this case percentage change in quantity is equal to corresponding percentage change in price. So, total revenue will remain unchanged as a result of price increase.

c. ED = 8
Absolute value of price elasticity of demand is greater than ...

Solution Summary

There are three problems. Solution to first problem predicts the effect of price increase on total revenue for given values of elasticity. Solution to second problem explains the reasons for higher elasticity of Coca-cola. Solution to third problem explains the methodology to calculate economic and accounting profit for given cases.

What are the major determinants of priceelasticity of demand? Use these determinants and your own reasoning in judging whether demand for each of the following products is elastic or inelastic, and explain your rationale for each one:
a) bottled water; b) toothpaste; c) Crest toothpaste; d) ketchup; e) diamond bracelets; f) M

Assuming there are three determinants for demand of good X. There are price of good X and Y and money income. How to find out and calculate 1.INCOME ELASTICITY 2.CROSS-PRICEELASTICITY 3.OWN PRICEELASTICITY. Make sure have to Indicate which determinants of demand are variable and which are fixed.

1. A market consists of two individuals. Their demand equations are Q1 = 16-4P and Q2 = 20-2P respectively.
a. What is the market demand equation?
b. At a price of $2, what is the point priceelasticity for each person and for the market?

Suppose the price of apples rises from $3 a pound to $3.45 and your consumption of apples drops from 30 pounds of apples a month to 21 pounds of apples. Calculate your priceelasticity of demand of apples. What can you say about your priceelasticity of demand of apples? Is it elastic, inelastic, or unitary elastic?

Quantity PriceElasticity
Demanded
100 $ 5
80 $10
60 $15
40 $20
20 $25
10 $30
1. Determine the priceelasticity of demand at each quantity demanded using the formula % chg in QD divided by % chg in price.
2. Redo #1 using price changes of $

Consider a service that you buy frequently. (Can use pedicure 2 times per month at $50 for graph and calculation)
a. Suppose that the price was 5% lower and all other factors do not change. How much more would you buy each year?
b. Using this information, calculate the own-priceelasticity of your demand.

With respect to the priceelasticity of demand, construct a graph using the data in figure 1. Illustrate the ranges on the demand curve that indicate elastic, inelastic, and unitary elasticity. Explain your answers. Enter non-numerical responses in the same worksheet using tax boxes.
Quantity total

Given the same priceelasticity of supply, sellers would be able to pass along the smalles portion of a 10%tax on which item?
Beef with a priceelasticity of demand of .62
Pork with a priceelasticity of demand of .73
Chicken with a priceelasticity of demand of .32
Fish with a priceelasticity of demand of .12