PS7_Solutions

# PS7_Solutions - AEM 4150 PRICE ANALYSIS Fall 2008 Problem...

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AEM 4150 PRICE ANALYSIS Fall 2008 Problem Set #7 Suggested Solutions 1. Elasticities and Joint Products: Based on the information provided: X oranges = all oranges, the basic commodity X fresh = fresh oranges X juice = orange juice X fresh = 75,000 bushels X juice = 90,000 - 75,000 = 15,000 bushels P fresh = 12.00 \$/bu P juice = 9.00 \$/bu E fresh = -0.68 E juice = -1.54 The price elasticity of the basic commodity, oranges, is: () () () () 73 . 0 7 . 191 , 411 , 1 000 , 035 , 1 3 . 662 , 87 4 . 529 , 323 , 1 000 , 035 , 1 54 . 1 000 , 135 68 . 0 000 , 900 000 , 135 000 , 900 15 ( 9 54 . 1 1 ) 000 , 75 ( 12 68 . 0 1 ) 000 , 15 ( 9 ) 000 , 75 ( 12 1 1 = = = + + = + + = + ) 000 , + = juice juice juice fresh fresh fresh juice juice fresh fresh oranges X P E X P E X P X P E Therefore the price elasticity of demand for the basic commodity (oranges) is –0.73 . 2. Total Elasticity: Suppose that lamb was determined to have only 2 significant substitutes, beef and

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PS7_Solutions - AEM 4150 PRICE ANALYSIS Fall 2008 Problem...

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