Reference no: EM13247274

3. The Olde Yogurt Factory has reduced the price of its popular Mmmm Sundae from $2.25 to $1.75. As a result, the firm's daily sales of these sundaes have increased from 1,500/day to 1,800/day. Compute the arc price elasticity of demand over this price and consumption quantity range.

4. The subway fare in your town has just been increased from a current level of 50 cents to $1.00 per ride. As a result, the transit authority notes a decline in ridership of 30 percent.

A. Compute the price elasticity of demand for subway rides.

B. If the transit authority reduces the fare back to 50 cents, what impact would you expect on    the ridership? Why?

7. In an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price and 11 percent increase in advertising. If the price elasticity of demand is -1.5 and he advertising elasticity of demand is =0.6, would you expect an increase or decrease in total revenue?

5. General Cereals is using a regression model to estimate the demand for Tweetie Sweeties, a whistle-shaped, sugar-coated breakfast cereal for children. The following (multiplicative exponential) demand function is being used:

QD = 6,280P-2.15A1.05N3.70

Where QD = quantity demanded, in 10 oz.: boxes

P = price per box, in dollars

A = advertising expenditures on daytime television, in dollars

N = proportion of the population under 12 years old

Determine the point price elasticity of demand for Tweetie Sweeties.
Determine the advertising elasticity of demand.
What interpretation would you give to the exponent of N?

6. The demand for haddock has been estimated as

Log Q = a + b log P + c log I + d log Pm

Where Q = quantity of haddock sold in New England

P = price per pound of haddock

I = a measure of personal income in the New England region

Pm = an index of the price of meat and poultry

If b = -2.174, c = 0.461, and d = 1.909,

Assuming all other factors remain constant, forecast the percentage change in the quantity of haddock demanded next year.

7. An estimate of the demand function for household furniture produced the following results:

F = 0.0036 Y1.08R0.16P-0.48 r2 = 0.996

Where F = furniture expenditures per household

Y = disposable personal income per household

R = value of private residential construction per household

P = ratio of the furniture price index to the consumer price index