All questions utilize the multivariate demand function for Toyotas given in C4 o
ID: 1225806 • Letter: A
Question
All questions utilize the multivariate demand function for Toyotas given in C4 on text page X2. initially with: Pm = $20000 Pg = $1.00 I = $15000 A= $10000 Thu function b: Qr = 200 -.01 Pr +.005Pm -10Pg +.011 +J03A use the above to calculate the are price elasticity of demand between P-r = $20000 and P-r = $1500 The are 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 price and revenue that will result if the quantity a sold (fill in table below). Marketing suggest lowering P_1 from $20000 to $15000. The size of the elasticity coefficient should tell you what a likely to happen to revenue by plain why this a (ce is net) a food marking suggest frees a point (you answer in # I and the calculations in #2 should be giving the tame manage). If the implications in #1 and #2 differ, don the difference make seem (or did you make a mistake in #1 or #2? Assume the PR = $17500 (which should make Q_r = 29)). Now, die post elasticity formula below calculi the prom price elasticity of demand Is the point elasticity coefficient the same as the ban coefficient in #1? does this make sense if the two are the same? If the two differ, does this make sense and why? The formal n Calculate the point gasoline cross- price elasticity of demand with Pg, = $1 00 Use Qi corresponding to Pr = $20000 Other variables and their allies are given at the top, before Does this that the demand for Toyotas is relatively responsive to change in the price of gasoline (Pg)? Expel. in why or #4 net The formula it:Explanation / Answer
QT = 200 - 0.01PT + 0.005PM - 10PG + 0.1I + 0.003A
QT = 200 - 0.01PT + (0.005 x 20,000) - (10 x 1) + (0.01 x 15,000) + (0.003 x 10,000)
QT = 200 - 0.01PT + 100 - 10 + 150 + 30
QT = 470 - 0.01PT
(1)
When PT = 20,000,
QT = 470 - (0.01 x 20,000) = 470 - 200 = 270
When PT = 15,000,
QT = 470 - (0.01 x 15000) = 470 - 150 = 320
Elasticity = [(270 - 320) / (20,000 - 15,000)] x [ (270 + 320) / (20,000 + 15,000)]
= [- 50 / 5,000] / [590 / 35,000]
= - 0.01 / 0.0169
= - 0.59
(2) Total revenue = Price x Quantity
NOTE: First 2 questions are answered.
PRICE QUANTITY TOTAL REVENUE $ $ 20,000 270 54,00,000 15,000 320 48,00,000