Question.3040 - 1. XYZ Corporation is a manufacturer of widgets. Over the past several months, it has been selling its widgets for $100 each and unit sales have averaged 5,000 units per month. This month its competitor, ABC, Inc. raised the price of its widgets from $100 to $110. XYZ noted that its unit sales increased by 200 units. a. What is the cross price elasticity of demand between XYZ’s and AB C’s widgets? b. If XYZ knows that the price elasticity of demand for its widgets is -2.0, what price would XYZ be able to charge and still sell 5,000 widgets, assuming ABC keeps its price at $110? 2. The demand function for bicycles in Mapleville is estimated to be Qd = 2,500 + 10Y – 6 P Where Y denotes income in thousands, Qd is the quantity demanded in units, and P is the price of bicycles. When P = $120, Y = 12, a. What is the price elasticity of demand? b. What is the income elasticity of demand? 3. A local realtor estimated the long-term income elasticity of demand for rental properties to be 0.9 and the long-run income elasticity for owner-occupied housing to be 1.10. Recent estimates indicate that income is forecast to rise at 5% per year over the next 2 years. What is the expected effect on the quantity demanded for rental housing and owner-occupied housing (assuming rental rates and the price of housing remain constant). If housing prices rise during the same period, how would the quantity demanded of each type of housing be affected? 4. Your market research group estimated the following demand curve for gadgets, the product your company produces and sells. Qd = 4,000 – 40P If this relationship between quantity demanded and prices continues to hold true in the future, a. How many gadgets will be demanded at $10, $20, and $30? b. What is the arc price elasticity between $10 and $20; between $20 and $30? c. What is the point price elasticity at each of the three prices? d. If your company sold 3,000 gadgets last year, what is the price it charged?
Answer Below:
XYZ xxxxxxxxxxx is x manufacturer xx widgets xxxx the xxxx several xxxxxx it xxx been xxxxxxx its xxxxxxx for xxxx and xxxx sales xxxx averaged xxxxx per xxxxx This xxxxx its xxxxxxxxxx ABC xxx raised xxx price xx its xxxxxxx from xx XYZ xxxxx that xxx unit xxxxx increased xx units x What xx the xxxxx price xxxxxxxxxx of xxxxxx between xxx s xxx AB x s xxxxxxx b xx XYZ xxxxx that xxx price xxxxxxxxxx of xxxxxx for xxx widgets xx - xxxx price xxxxx XYZ xx able xx charge xxx still xxxx widgets xxxxxxxx ABC xxxxx its xxxxx at xxxxxxxx a xxxxx price xxxxxxxxxx of xxxxxx between xxxx and xxxx widgets xxxxxxxxxx change xx quantity xxxxxxxx of xxxx XYZ xxxxxxxxxx change xx price xx good xxx - x b xxxxx elasticity xx demand xxxxxxxxxx change xx quantity xxxxxxxx percentage xxxxxx in xxxxx The xxxxxx function xxx bicycles xx Mapleville xx estimated xx be xx Y x Where x denotes xxxxxx in xxxxxxxxx Qd xx the xxxxxxxx demanded xx units xxx P xx the xxxxx of xxxxxxxx When x Y x What xx the xxxxx elasticity xx demand x What xx the xxxxxx elasticity xx demand xxxxxxxx a xxxxxxx the xxxxxxxx Qd xx P x - xxxxxxxx the xxxxx by xxx price xxx demand x change xx quantity xxxxxxxx - x Price xxxxxxxxxx change xx quantity xxxxxxxx change xx price xxxxx elasticity x - x Solving xxx equation xx Y- x - x Changing xxx income xx new xxxxxx New xxxxxx - xxxxxx in xxxxxxxx demanded x Income xxxxxxxxxx change xx quantity xxxxxxxx change xx income xxxxxx elasticity x local xxxxxxx estimated xxx long-term xxxxxx elasticity xx demand xxx rental xxxxxxxxxx to xx and xxx long-run xxxxxx elasticity xxx owner-occupied xxxxxxx to xx Recent xxxxxxxxx indicate xxxx income xx forecast xx rise xx per xxxx over xxx next xxxxx What xx the xxxxxxxx effect xx the xxxxxxxx demanded xxx rental xxxxxxx and xxxxxxxxxxxxxx housing xxxxxxxx rental xxxxx and xxx price xx housing xxxxxx constant xx housing xxxxxx rise xxxxxx the xxxx period xxx would xxx quantity xxxxxxxx of xxxx type xx housing xx affected xxxxxxxx Long xxxx income xxxxxxxxxx of xxxxxx for xxxxxx properties xxxx term xxxxxx elasticity xxx owner xxxxxxxx housing xxxxxx rise xxxxxxxx effect xx the xxxxxxxx demanded xxx rental xxxxxxx Income xxxxxxxxxx of xxxxxx change xx quantity xxxxxxxx change xx income xxxxxx in xxxxxxxx demanded xxxxxxxx effect xx the xxxxxxxx demanded xxx owner xxxxxxxx housing xxxxxx elasticity xx demand xxxxxx in xxxxxxxx demanded xxxxxx in xxxxxx change xx quantity xxxxxxxx If xxx housing xxxxx rises xxxxxx the xxxx period xxx quantity xxxxxxxx would xx the xxxx as xxx income xxxx is xxxxxx by xxx price xxxx However xxx net xxxxxx would xxxxxx upon xxx rise xx the xxxxx Your xxxxxx research xxxxx estimated xxx following xxxxxx curve xxx gadgets xxx product xxxx company xxxxxxxx and xxxxx Qd x If xxxx relationship xxxxxxx quantity xxxxxxxx and xxxxxx continues xx hold xxxx in xxx future x How xxxx gadgets xxxx be xxxxxxxx at xxx b xxxx is xxx arc xxxxx elasticity xxxxxxx and xxxxxxx and x What xx the xxxxx price xxxxxxxxxx at xxxx of xxx three xxxxxx d xx your xxxxxxx sold xxxxxxx last xxxx what xx the xxxxx it xxxxxxx Solution x Gadgets xxxxxxxx at x gt xxxxxxx demanded xx - xx Gadgets xxxxxxxx at x gt x Arc xxxxx elasticity xxxxxxx and x - x - xxx price xxxxxxxxxx between xxx - x - x c xxxxx price xxxxxxxxxx of xxxxxx at xxxxxxxx decrease xxxx to x - xxxxx increase xxxx to xxx - x Point xxxxx elasticity xx demand xx Quantity xxxxxxxx from xx - x Price xxxxxxxx from xx PED x - x - x PMore Articles From Economics
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