Assignments 4 Elasticity
Assignment (4) - Elasticity
Managerial Economics : Dr. Fakhry El Fiky
_________________________________________________________________________
Name: Mahmoud Ahmed Ibrahim Abd- Elnaiem – Group B – MBA. ID# _____ _____________________________________________________________________
1. When the Sony TV price decreases from LE 1,000 to LE 800, consumers increases their quantity demand from 100,000 units / month to 120,000 units / month. Calculate the price elasticity of demand (PED). Also, while this is happening, the price LG TV increases from LE 500 to LE 600, calculate the cross-price elasticity.
PED = (Q2 - Q1 / Q1) / (P2 - P1 / P1)
= (20,000 / 100,000) / (-200 / 1,000)
= (0.2 / -0.2) = - 1 Unit Elastic CPED = (Q2 - Q1 / Q1) / (Py2 - Py1 / Py1)
= (20,000 / 100,000) / (-100 / 500)
= (0.2 / 0.2) = -1 Unit Elastic Complement good
2. A manufacturer of a computer workstations gathered average monthly sales figures from its 56 branch offices and dealerships across the country and estimated the following demand for its products:
Q = +15000 – 2.80P + 150A + 0.3Ppc + 0.35Pm +0.2Pc
The Variables assumed values are:
Q = Quantity
P = Price of basic model = 7,000
A = Advertising expenditures = 52
Ppc = Average price of a personal computer = 4,000
Pm = Average price of minicomputer = 15,000
Pc = Average price of leading competitor workstations = 8,000
Compute the elasticity for each of the variables. On this basis discuss the relative impact that each variable has on the demand. What implications do the results have for the firm’s marketing and pricing policies?
Q = +15000 – 2.80 (7,000) + 150(52) + 0.3(4,000) + 0.35(15,000) +0.2(8,000)
Q = +15,000 – 19,600 + 7,800 + 1,200 + 5,250 + 1600 = 11,250
A) PED = dQ/dP x P1/Q1 dQ/dP = -2.8 (from Equation) P = 7,000 Q = 11,250
= -2.8 x 7,000/11,250 = -1.74 Elastic
Negative Relationship: A 1% increase (decrease) in price will lead to a 1.74% decrease (increase) in quantity
Managerial Economics : Dr. Fakhry El Fiky
_________________________________________________________________________
Name: Mahmoud Ahmed Ibrahim Abd- Elnaiem – Group B – MBA. ID# _____ _____________________________________________________________________
1. When the Sony TV price decreases from LE 1,000 to LE 800, consumers increases their quantity demand from 100,000 units / month to 120,000 units / month. Calculate the price elasticity of demand (PED). Also, while this is happening, the price LG TV increases from LE 500 to LE 600, calculate the cross-price elasticity.
PED = (Q2 - Q1 / Q1) / (P2 - P1 / P1)
= (20,000 / 100,000) / (-200 / 1,000)
= (0.2 / -0.2) = - 1 Unit Elastic CPED = (Q2 - Q1 / Q1) / (Py2 - Py1 / Py1)
= (20,000 / 100,000) / (-100 / 500)
= (0.2 / 0.2) = -1 Unit Elastic Complement good
2. A manufacturer of a computer workstations gathered average monthly sales figures from its 56 branch offices and dealerships across the country and estimated the following demand for its products:
Q = +15000 – 2.80P + 150A + 0.3Ppc + 0.35Pm +0.2Pc
The Variables assumed values are:
Q = Quantity
P = Price of basic model = 7,000
A = Advertising expenditures = 52
Ppc = Average price of a personal computer = 4,000
Pm = Average price of minicomputer = 15,000
Pc = Average price of leading competitor workstations = 8,000
Compute the elasticity for each of the variables. On this basis discuss the relative impact that each variable has on the demand. What implications do the results have for the firm’s marketing and pricing policies?
Q = +15000 – 2.80 (7,000) + 150(52) + 0.3(4,000) + 0.35(15,000) +0.2(8,000)
Q = +15,000 – 19,600 + 7,800 + 1,200 + 5,250 + 1600 = 11,250
A) PED = dQ/dP x P1/Q1 dQ/dP = -2.8 (from Equation) P = 7,000 Q = 11,250
= -2.8 x 7,000/11,250 = -1.74 Elastic
Negative Relationship: A 1% increase (decrease) in price will lead to a 1.74% decrease (increase) in quantity