Numerical Problems

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Managerial Economics

Numerical Problems

DEMAND AND ELASTICITY OF DEMAND

Problem 1

The following are demand and supply equations of a pen manufacturer.

Qd = 5,00,000 – 50, 000 P
Qs = -1,00,000 + 1,00,000 P

Find
1. At what average price, level of demand is equal to zero.
2. At what average price, level of supply is equal to zero.
3. Calculate the equilibrium price and quantity.

Problem 2

Yashika Limited manufactures an automatic camera that currently sells at uS$90. Sales volume is about 2,000 cameras per month in a city. A close competitor, Minolta, has cut the price of a similar camera it makes from US$ 100 to US$80. Yashika’s economist has estimated the arc cross elasticity of demand between the two rival firms’ products at about 0.4, given current incomes and price levels.

What impact, if any, will the action by Minolta have on the total revenue generated by Yahika, if it leaves its current price unchanged?

|YASHIKA |MINOLTA | |P1y = 90 |P1m = 100 | |Q1y = 2,000 |P2m = 80 | |Q2y = to be determined |Cross elasticity of demand = 0.4 |

Problem 3

Bajaj Appliances Ltd. manufactures a line of microwave ovens costing US$500 each. Its sales have averaged about 6,000 units per month during 2001. In June 2002, Bajaj’s closest competitor LG had cut its oven’s price from US$600 to US$450. Bajaj noticed that its sales volume declined to 4,500 units per month after the price cut by its rival LG.

1. What is the arc cross price elasticity of demand between the two? 2. Would you say that these two firms are very...
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