Reference no: EM13182691
John Smith, C.E.O. of A.B.Co. is attempting to estimate the quantity of his product that will be demanded during April. At the current price of $20.00, A.B. Co. is selling 100,000 units per month. Mr. Smith has been informed that on April 1st, Delta Co., a producer of a substitute good, will be decreasing the price of its product by 10%. Given a cross elasticity of 2 and the following information answer the following questions. For this problem you may use the definition of elasticity to forecast quantity even.
MC = $4
Current Advertising Budget $200,000
A) How many units can Smith expect to sell during April and by how much will his profits be affected?
B) If Mr. Smith wants to maintain his current sales of 100,000 units, to what level should he change his price? (Assume Ep = -4)
C) At this new price for his product profits will change by how much from part A?
D) An alternative strategy to lowering his price to restore his sales volume to 100,000 units would be to increase advertising expenditures. Given and Advertising elasticity of.5 how much should advertising expenditures be changed to restore his sales to 100,000 units?
E) Given your answer to D, what will be the change in his level of profits from part A?
F) Which alternative would you favor if profit is the most important variable to Mr. Smith?
NOTE: When you are asked to forecast a quantity resulting from a change in a variable you may use the definition of elasticity, the easy method, to derive the forecast for all problems. Using the definition is less accurate than using the elasticity formula but much easier mathematically.
|
How might this policy be exasperating the recession
: According to theory, if you lower interest rates, business investments and consumer purchases of large durable goods are supposed to increase. In return, this is to help pull us out of a recession. However, this policy of extraordinarily low inter..
|
|
State what volumes of sulfur dioxide and dihydrogen sulfide
: What volumes of sulfur dioxide and dihydrogen sulfide gases are necessary to produce 11.4 L of water vapor? The balanced equation is SO2 + 2 H2S à 3 S + 2 H2O.
|
|
What happens if the economy is producing a level of output
: we know that when an economy starts out at long-run equilibrium and the government cuts taxes, this will result in inflation int he long run. what happens if the economy is producing a level of output below the full employment (long run equilibriu..
|
|
Describe why the form of the equilibrium constant
: Explain why the form of the equilibrium constant for a chemical transformation can be predicted from its stoichiometric coefficients whereas
|
|
How much should advertising expenditures be changed
: Smith has been informed that on April 1st, Delta Co., a producer of a substitute good, will be decreasing the price of its product by 10%. Given a cross elasticity of 2 and the following information answer the following questions. For this proble..
|
|
State larger rf value in a soluvent of medum polarity
: Based on polarity, which compound do you expect to have a larger Rf value in a soluvent of medum polarity
|
|
What will be the prot per ton
: How much corn will the industry be willing to supply at a price of $200? What about at a price of $250? What about $300? $350? $400? ii) Use your answers to graph the long-run supply curve for the industry, that is, the quantity of output the indus..
|
|
Are they better off licensing or being aggressive
: Since the VP's trust you, they asked you to figure out the most they should pay for a license from SohnCo and how does this strategy work for them? Are they better off licensing or being aggressive?
|
|
Estimate the population mean travel-to-work time
: The travel-to-work time for residents of the 15 largest cities in the United States is reported in the 2003 Information Please Almanac. Suppose that a preliminary simple random sample of residents of San Francisco is used to develop a planning val..
|