Economics and Fantasy Pinball Machines
The following demand function has been estimated for Fantasy Pinball machines:
QD = 3,500 – 40P + 17.5Px + 670U + 9A + 6,500N
Where P = monthly rental price of Fantasy Pinball machines
Px = monthly rental price of Old Chicago pinball machines (a competitor)
U = current unemployment rate in the 10 largest metropolitan areas
A = advertising expenditures for Fantasy Pinball machines in thousands of dollars
N = fraction of the US population between 10 and 30 a) What is the point elasticity of demand with respect to Fantasy Pinball machines when P = $150, Px= $100, U=0.12, A = $200,000 and N = .35?
b) What is the point cross elasticity of demand with respect to Old Chicago pinball machines for the values of the variables in part (a)?
c) A rumor is circulating in the industry that Old Chicago has excess inventory and is planning a 20% discount for new and existing customers. How should Fantasy respond if the news is verified?
5. Art Reynolds, a recent Goizueta grad, started a business, Art-tile, which manufactures high-end tiles which are sold to Atlanta construction companies and home re-modelers. Based on past experience, Art estimates that he needs a work-force that varies with the level of tile weekly production according to the following table:
Tiles produced 1000 2000 3000 4000 5000 6000 7000 8000
Workers required 10 19 27 34 41 48 58 70
a. Calculate the average and marginal product of labor for each increment of 1000 units of production and present your results in table. In a sentence or two describe the results.
b. If Art-tile receives $9 per tile, calculate the marginal revenue product for each level of production.
c. If Art pays his workers $800 per week, how many should he hire? (Assume that labor is his only production cost.) Why?
6. In addition to the information in problem 5, you learn that Art has costs of $12,000 per week reflecting the cost of the capital he invested in equipment and the long-term lease
QD = 3,500 – 40P + 17.5Px + 670U + 9A + 6,500N
Where P = monthly rental price of Fantasy Pinball machines
Px = monthly rental price of Old Chicago pinball machines (a competitor)
U = current unemployment rate in the 10 largest metropolitan areas
A = advertising expenditures for Fantasy Pinball machines in thousands of dollars
N = fraction of the US population between 10 and 30 a) What is the point elasticity of demand with respect to Fantasy Pinball machines when P = $150, Px= $100, U=0.12, A = $200,000 and N = .35?
b) What is the point cross elasticity of demand with respect to Old Chicago pinball machines for the values of the variables in part (a)?
c) A rumor is circulating in the industry that Old Chicago has excess inventory and is planning a 20% discount for new and existing customers. How should Fantasy respond if the news is verified?
5. Art Reynolds, a recent Goizueta grad, started a business, Art-tile, which manufactures high-end tiles which are sold to Atlanta construction companies and home re-modelers. Based on past experience, Art estimates that he needs a work-force that varies with the level of tile weekly production according to the following table:
Tiles produced 1000 2000 3000 4000 5000 6000 7000 8000
Workers required 10 19 27 34 41 48 58 70
a. Calculate the average and marginal product of labor for each increment of 1000 units of production and present your results in table. In a sentence or two describe the results.
b. If Art-tile receives $9 per tile, calculate the marginal revenue product for each level of production.
c. If Art pays his workers $800 per week, how many should he hire? (Assume that labor is his only production cost.) Why?
6. In addition to the information in problem 5, you learn that Art has costs of $12,000 per week reflecting the cost of the capital he invested in equipment and the long-term lease