davenport econ625 Problem Set 2

• Question 1

2 out of 2 points

The following situation will be used to answer questions 1 through 5. (Adapted from chapter 3 problem 4)

Monthly demand and supply for a computer support service catering to small businesses can be represented by these equations:

Qd = 3000 - 10P

Qs = -1000 + 10 P

where Qd is the number of businesses demanding the services, Qs is the number of businesses that suppliers are willing to service, and P is the monthly fee, in dollars.

At what average monthly fee would demand equal zero?

• Question 2

2 out of 2 points

Refer to the situation in question 1.

At what average monthly fee would supply equal zero?

• Question 3

2 out of 2 points

Refer to the situation described in equation 1. What is the equilibrium price?

• Question 4

2 out of 2 points

Refer to the situation in question 1. What is the equilibrium output level?

• Question 5

2 out of 2 points

Refer to the situation in question 1.

Suppose demand increases and leads to a new demand curve:

Qd = 3500 - 10P

What will be the new equilibrium price and quantity?

.

• Question 6

2 out of 2 points

The following situation applies to questions 6 through 9. (Adapted from chapter 3 problem 6)

Joy's Frozen Yogurt shops have enjoyed rapid growth in northeastern states in recent years. From the analysis of Joy's various outlets, it was found that the demand curve follows this pattern:

Q = 200 - 300P + 120I + 65T - 250Ac + 400 Aj

where Q = number of cups served per week, P = average price paid for each cup, I = per capita income in the given market (thousands), T = average outdoor temperature, Ac = competition's monthly advertising expenditures (thousands) and Aj = Joy's own monthly advertising expenditures (thousands)

One of the outlets has the following conditions: P=1.50, I=10, T=60, Ac=15, Aj=10.

Estimate the number of cups served per week by this outlet.

• Question 7

0 out of 2 points

Refer to the previous question. Which of the following represents the demand curve for this market?

• Question 8

2 out of 2 points

Refer to question 6. What will be the effect of a $5 thousand increase in the competitor's advertising expenditure?

• Question 9

2 out of 2 points

Refer to question 6 and question 8. What would Joy's expenditure need to be to counteract the effect of the competitor's increase in advertising that was described in question 8?

• Question 10

2 out of 2 points

The Teenager Company makes and sells skateboards at an average price of $70 each. During the past year, they sold 4,000 of these skateboards. The company believes that the price elasticity for this product is about -2.5. Which of the following would be the best option for the company? (Based on Chapter 4 question 6)

• Question 11

2 out of 2 points

Refer to the situation described in question 10. What was total revenue for the past year, in dollars? (Enter as a whole number without the dollar sign.)

• Question 12

0 out of 2 points

Refer to the situation described in question 10. Given the price elasticity of -2.5, and the proposed price of $63, what should be the quantity supplied? (Round to the nearest whole number.)

• Question 13

1 out of 2 points

Refer to the situation described in question 10. What would total annual revenue be at the proposed price of $63? (Enter as a whole number without the dollar sign.)

• Question 14

2 out of 2 points

If the company’s belief is correct, would total revenue increase, decrease, or remain the same as a result of the price cut to $63?

• Question 15

2 out of 2 points

Questions 15 through 17 refer to the following scenario. A local supermarket lowers the price of its vanilla ice cream from $3.50 per half gallon to $3. Vanilla ice cream unit sales increase by 20 percent. The store manager notices that the unit sales of chocolate syrup increase by 10 percent.

What is the price elasticity of vanilla ice cream? Round to the nearest tenth and drop the minus sign when submitting your answer.

• Question 16

2 out of 2 points

How would you measure the effect of the ice cream price on chocolate syrup sales?

• Question 17

0 out of 2 points

Refer to question 15. Overall, do you think that the new pricing policy was beneficial for the supermarket?

• Question 18

2 out of 2 points

Questions 18 through 21 refer to the following: The demand curve for a product is given as Q = 2000 – 20P. How many units will be sold at $10?

• Question 19

2 out of 2 points

At what price would 1500 units be sold? (Enter as a whole number without the dollar sign.)

• Question 20

0 out of 2 points

What will be the total revenue at a price of $70? (Enter as a whole number without the dollar sign.)