What is the price elasticity of netflix subscriptions

Assignment Help Microeconomics

Reference no: EM133195721 , Length: 2 Pages

Assignment:

1. Suppose the demand for Netflix is given by

qN =a-bNpN +bHpH (1)

where qN is the number of Netflix subscriptions, pN is the price of a Netfilx plan, and pH is the price of a Hulu plan.

(a) What is the price elasticity of Netflix subscriptions? (Hint: Use the definition of elasticity in Theorem 1 below)

(b) Suppose a = 500, bN = 10, bH = 5, and pN = pH = 50. What are Netflix's demand elasticity and cross-price elasticity? Are products of Hulu and Netflix substitutes or complements?

2. Music Ventures sells a very popular MP3 player, the MP34u. The firm currently sells one million unites for a price of $100 each. Marginal cost is estimated to be constant at $40, where as average cost (at the output level of one million units) is $90. The firm estimates that its demand elasticity (at the current price level) is approximately -2.

(a) Should the firm raise price, lower price, or leave price unchanged? Explain you answer.

Theorem 1 (own-price elasticity and cross-price elasticity) Suppose the demand function for some good is

Q = β0 + β1p + β2p ~,

where β0, β1, β2 are constant numbers, Q is the quantity demanded, p is its price, and p ~ is the price of another good. Then the own-price elasticity is

ε = β1p/q, 1

and the cross-price elasticity is

ε ~ = β2p ~/q

3. Las-O-Vision is the sole producer of holographic TVs, 3DTVs. The weekly demand for 3DTVs is

q = D(p) = 10200 - 100p (2)

The cost of producing q 3DTVs per week is q2/2 (note this implies that MC = q).

(a) What is Las-O-Vision's total revenue schedule?

(b) What is Las-O-Vision's marginal revenue schedule?

(c) What is the profit-maximizing number of 3DTVs for Las-O-Vision to produce each week? What price does Las-O-Vision charge per 3DTV?

Theorem 2 (Relationship between total revenue and marginal revenue) Suppose the total revenue function TR(q) is

TR(q) = a + bq + cq2,

where a,b,c are constant numbers. Then the marginal revenue function MR(q) is

MR(q) = b + 2cq. Theorem 3 (Relationship between total cost and marginal cost)

Suppose the total cost function TC(q) is

TC(q) = a + bq + cq2,

where a,b,c are constant numbers. Then the marginal cost function MC(q) is MC(q) = b + 2cq.

Reference no: EM133195721

Questions Cloud

How do you think investors could discipline themselves : How do you think investors could discipline themselves so that they don't make these behavioral mistakes?

Explain an economic idea contained in this story : In your second paragraph, you must explain an economic idea contained in this story. Liberty University.

Examine the organizational structure : You selected to examine the organizational structure and suggests ways it can be changed to improve the overall profitability.

What is joharis window : What is Johari's window? Describe the model and how it works in one to two pages. Eastern Illinois University.

What is the price elasticity of netflix subscriptions : What is the price elasticity of Netflix subscriptions? (Hint: Use the definition of elasticity in Theorem 1 below). University at Albany. ECO 374.

Are chocolate-textbooks complements or substitutes for jen : Are chocolate and textbooks complements or substitutes for Jen? Is chocolate a normal good?

What is the principle-agent problem : We look at the principle-agent problem and what when wrong at Wells Fargo. On March 28, 2019 Tim Sloan the CEO of Wells Fargo.

How does this affect the hr managers hiring decisions : Which decision error is more likely to be discovered management? How does this affect the HR manager's hiring decisions? Strayer University. ECO 550.

Concept of inflation : What is it important to understand the concept of inflation, present value. Colorado Northwestern Community College.

User Account

All Pages