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1. The document provides the demand curve for product X as Q = 2000 - 2P and solves several related problems involving total revenue, marginal revenue, price elasticity, and arc elasticity. 2. It also discusses the demand for ABC company's clock radios, solving for new monthly sales given a price decrease and the effect of a competitor lowering their price. 3. Finally, it analyzes the demand function P = 12000 - 6Q for Pankaj Electronics' LCD TVs, finding the marginal revenue function and the price and quantity where marginal revenue is zero.

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Ajay Abraham Anathanam
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1K views3 pages

Test Answers

1. The document provides the demand curve for product X as Q = 2000 - 2P and solves several related problems involving total revenue, marginal revenue, price elasticity, and arc elasticity. 2. It also discusses the demand for ABC company's clock radios, solving for new monthly sales given a price decrease and the effect of a competitor lowering their price. 3. Finally, it analyzes the demand function P = 12000 - 6Q for Pankaj Electronics' LCD TVs, finding the marginal revenue function and the price and quantity where marginal revenue is zero.

Uploaded by

Ajay Abraham Anathanam
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

the demand curve Q = 2000 2 P,for product X is given as Given Q = 2000 2 P, therefore P = 1000 Q/2 a) how many units will be sold at $10? Q = 2000 2 P Therefore, Q = 2000 - 2 (10) = 1980 b) write equations for total revenue and marginal revenue ( in terms of P) TR = P *Q = P (2000 2P) = 2000 P 2 P2 ( in terms of P) TR = P *Q = Q (1000 Q/2) = 1000 Q Q2/2 This is important as we can find Marginal revenue only from TR (in terms of Q) MR = TR /Q (one unit change in TR because ofa unit change in Q) Therefore MR = 1000 Q MR = 1000 Q = 1000 (2000 2P) = 2P 1000 (in terms of P) c) what will be the total revenue at a price of $70? What will be the marginal revenue? TR = 2000 P 2 P2, substitute for P =70 TR = 130200 MR = 2P 1000, substitute for P =70 MR = -860 d) what is the point elasticity at a price of $70? Ep = (Q /P)* (P/Q) You get (Q /P) = -2 by differentiating Q = 2000 2 P, substitute the value of Q when P = 70 Therefore Ep = -2 * (70 / 1980) = -0.0753 e) at what price would elasticity be unitary? Ep = 1, therefore 1= -2 * P/(2000 2P) = P/ (2000-2P), therefore P = 500

f) calculate arc elasticity at the interval between $60 and $70. Ep = (Q2 Q1)/(P2-P1) * (Q2 + Q1)/(P2 + P1) We get for P = 60, Q = 1880 and for P = 70, Q = 1860 Therefore Ep = (1880- 1860)/(60-70) * (1880 + 1860)/(60 + 70) = - 0.0695

2. The ABC company manufactures AM/FM clock radios and sells on average 3000 units monthly at $25 each to retail stores. Its closest competitor produces a similar type of radio that sells for $28. a) if the demand for ABCs product has an elasticity coefficient of -3, how much will it sell per month if the price is lowered to $22. Ep = (Q2 Q1)/(P2-P1) * (Q2 + Q1)/(P2 + P1) Where Ep = -3, Q2 = ?, Q1 = 3000, P2 = 22, P1 = 25, substituting in the arc elasticity formula above, Q2 = 4421.05 approx 4421 b) the competitor decreases its prices to $24. It cross-elasticity between the two radios is 0.3, what will be the ABCs monthly sales be? Cross elasticity Ep = (Qx2 Qx1)/(Py2-Py1) * (Qx2 + Qx1)/(Py2 + Py1) Assuming Qx1 = 3000, Qx2 = ?, Py2 = 24, Py1 = 28 Substituting, Qx2 = 2864.66 approx 2864 Assuming Qx1 = 4421, Qx2 =?, Py2 = 24, Py1 = 28 Substituting, Qx2 = 4221 3) In the electronic market of Nehru Place, the demand function as analysed by Pankaj Electronics for its LCD TV sets is P = 12000 6Q. find out, a) the marginal revenue function for the same, TR = P *Q = 12000 Q 6 Q2 MR = TR /Q = 12000 12 Q = 1000 Q

b) at what price and quantity will marginal revenue be zero putting MR = 0, Q = 1000, P = 6000 4) In the electronic market of Nehru Place, the demand function as analysed by Pankaj Electronics for its LCD TV sets is P = 12000 6Q. find out, a) what is the point elasticity at a price of $70, Ep = (Q /P)* (P/Q) Differentiate Q = 2000 (1/6) P, (Q /P = -1/6 For P = 70, Q = 1988 Ep = -1/6*(70/1988) = -0.0058 b) at what price would elasticity be unitary? Ep = 1, therefore 1= -1/6 * P/(2000 P/6) 6(2000 P/6) = P P = 6000

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