Over the last year your
boss has noticed that it would be useful for your firm to understand how
consumers behave when variables in the market change and how these changes
affect the total revenue for your product. You have been asked to do an
analysis for your product, Good A, by addressing the following questions and
reporting the results to your boss in a formal paper.
Questions:
1.
Define the price
elasticity of demand? What information does it provide? How is it calculated?
2.
Define the income
elasticity of demand? What information does it provide? How is it calculated?
3.
Define the cross-price
elasticity of demand? What information does it provide? How is it calculated?
4.
What is total revenue?
How is it calculated?
5.
Define elastic,
inelastic, and unitary elasticity means. How are these related to total
revenue? Explain your answers.
6.
With respect to the
price elasticity of demand, construct a graph using the data in Figure1.
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 textboxes.
7.
Calculate the total
revenue for each level of demand and post into the table, Figure 1. (Copy and
paste this table into the Microsoft Word document that will form part of your
submission.)
8.
Using the midpoints
formula presented in the textbook, calculate the price elasticity coefficient
for each price level, starting with the coefficient for the $4 to $6 level. For
each coefficient, indicate each type of elasticity: elastic demand, inelastic
demand, or unitary demand. Post your answers into the table, Figure 1.
9.
Assume that the income
of consumers changes by 10%, and as a result the quantity demanded for Good A
changes by 8%. What is the income elasticity of demand for Good A? What does
this mean for your company?
10.
Assume that the price
of competing Good B decreases by 5% and as a result, the quantity demand for
Good A decreases by 8%. What is the cross-price elasticity for your product?
What type of goods are Good A and Good B?
Figure 1: The Demand
Schedule for Barbeque Dinners
|
Price |
Quantity Demanded |
Total Revenue |
Elasticity Coefficient |
Elastic or Inelastic |
|
|
$4 |
100 |
__________ |
XXXX |
XXXX |
|
|
6 |
80 |
__________ |
__________ |
__________ |
|
|
8 |
60 |
__________ |
__________ |
__________ |
|
|
10 |
40 |
__________ |
__________ |
__________ |
|
|
12 |
20 |
__________ |
__________ |
__________ |
|
|
14 |
1 |
__________ |
__________ |
__________ |
Required:
Prepare an analysis by
answering the above-noted questions. Your analysis will consist of two documents
as follows:
1.
Microsoft
Word document: Questions 1-5, 7-10.
2.
Microsoft
Excel worksheet: Question 6
