All questions utilize the multivariate demand function for Toyotas given in C4 o
ID: 1225654 • Letter: A
Question
All questions utilize the multivariate demand function for Toyotas given in C4 on text page 82, initially with: = $15000 A = $10000 This function is: Q_T = 200 -.01Pr +.005P_M -10P_c +.011 +.003A Use the above lo calculate the arc price elasticity of demand between P_r = $20000 and P_r = $15000. The arc elasticity formula is: E_p = Delta Q/Delta P middot P_1 + P_2/Q_1 + Q_2 Calculate the quantity demanded at each of the above prices and revenue that will result if (be quantify it told (fill in table below). Marketing suggests towering P_r from $20000 to $15000. The size of the elasticity coefficient in 1 should tell you what it likely to happen to revenue. Explain why this it (or it not) a good marketing suggestion from a revenue viewpoint If the implications in #1 and differ, don the difference make sense (or did you make a mistake ni #1 or #2)? Assume the P_r = $17500 (which should make Q_r = 295). Now, using the point elasticity formula below, calculate the pent price elasticity of demand. If this point elasticity coefficient the same at the arc coefficient in #1? Why does this make sense if the two arc the same? If the two differ, does this make sense and why'? The formula is: E_r = Q_T/P_r middot P_r/Q_r Calculate the point gasoline cross-price elasticity of demand with P_0 = $1.00. Use Q_r corresponding to P_r = $20000 Other variables and their values are given at the top. before question #1. Does this elasticity indicate that the demand for Toyotas is relatively responsive to changes in the price of gasoline (P_0)? Explain why or why not. The formula is: E_cross = Q_r/P_0 middot P_0/Q_r Competition might be a worry for Toyota. Mazdas arc represented by P_w. Calculate the point Masda cross-price elasticity of demand with P_u = $20000 and P_r = $20000 Does this elasticity coefficient indicate that the demand for Toyotas it relatively relatively to changes in the price of Mazdas? Explain why or why not. The formula is: E_cross = Q_r/P_M middot P_M/Q_rExplanation / Answer
1. When PT = $20000
QT = 200 - 0.01(20000) + 0.005(20000) - 10(1) + 0.01(15000) + 0.003(10000)
= 200 - 200 + 100 - 10 + 150 + 30
= 270
When PT = $15000
QT = 200 - 0.01(15000) + 0.005(20000) - 10(1) + 0.01(15000) + 0.003(10000)
= 200 - 150 + 100 - 10 + 150 + 30
= 320
ED = Q/P *( P1 + P2 /Q1 + Q2)
= (50 / -5000) * 25000 / 590)
= - 0.42
2.
Plz ask rest question in another post.
PT($) QT Revenue($) = PT*QT 20000 270 5,400,000 15000 320 4,800,000