Economics of Enterprise Answers

8. Samsung Electronics Ltd. manufactures and sells LCD monitors. The current price of a monitor is Rs. 5,000 and quantity sold is 1,000 units per year. The company believes that the price elasticity of demand is –1.5. The company decides to increase the price to Rs. 6,000. (a) How many monitors the company will be able to sell at new price? (b) What will be the effect on total revenue due to the increase in price? (c) Explain whether the increase in price is desirable or not from the viewpoint of its effect on sales and total revenue?

7. The Inquiry Club at Jefferson University has compiled a book that exposes the private lives of many of the professors on campus. Economics majors in the club estimate that total revenue from sales of the book is given by the equation. TR = 120Q - 0.1Q3 Initially, the price is set at $71.60. To maximize total revenue, should the price be increased or decreased? 

6. The advertising elasticity of a firm is 1.5 as advertising expenditure increases from $10 to $12 million. If demand is 50 at an advertising expenditure of $12 million, what will be the demand at an advertising expenditure of $10 million? 

5. A retailer has noticed from the past several months, sales of product x has been close to 200 units per week. On two occasions, however, sales declined to 120 units per week. 2 The retailer notes that during these two periods, the store has reduced Y's price from Rs. 5 to Rs. 4. (a) What is the arc cross-price elasticity between x and y? (b) What level of sales for x would you predict if the price of y is increased to Rs. 6?

4. The marketing manager of the Summers Company must formulate a recommendation concerning the price to be charged for a new product. According to the best available estimates, the marginal cost of the new product will be Rs. 18, and the price elasticity of demand for this product will be 3.0. (a) What recommendation should she make, if Summers wants to maximize profit? (b) If her recommendation is accepted, what will be the new product's marginal revenue?

3. After a careful statistical analysis, the Childester Company concludes that the demand function for the product is, Q = 500 - 3P + 2Pr + 0.1I Where Q is the quantity demanded of its product, P is the price of its product, Pr is the price of its rival's product, and I is the per capital disposable income (Rs.). At present, P = Rs. 10, Pr = Rs. 20, and I = Rs. 6,000. (a) What is the price elasticity of demand for firm's product? (b) What is the income elasticity of demand for firm's product? (c) What is the cross elasticity of demand between its product and its rival's product? 

The demand for a commodity is given by P(Q + 1) = 231 and the supply is given by P - Q = 11 , find the consumer and produce surplus.

Woolworth wants to increase its total revenue from Zambia market. The company already identified two type of customers as high income and medium income and plans to offer a 10%

discount on the cloths it sells. The table shows the sells made from the two groups

High income customers

(sales per month in Kwacha)

Medium income customers

(sales per month in Kwacha)

Sales before 10% discount 1.55 million 1.50 million

Sales after 10% discount 1.65 million 1.70 million

(a) Calculate the price elasticities of demand for high income customers and medium income

customers.

(b) Do you support the discount applied for both type of customers? Explain based on your

results from (a)

As economic/business consultant to the dominant firm in a particular market, you have discovered that, at the current price and output, demand for your customers’ product is price inelastic. What advice regarding pricing would you give to management? Explain.

What is the economic rationale of 'Minimum Support Price' in Indian agriculture? Explain in not more than 400 words.