Check Answers for Midterm Practice Problems 2008
EMBA Managerial Economics
The University of Memphis
Answers to Problem 1:
a. What
is the number of additional rooms occupied per day for each $1
reduction in the daily
room rate charged by Bella Grande?
Place your answer here
4.67
b.
Suppose that advertising is currently $15,000 per day, the airfare charged is
$2,000, and the
room rate is $275.
Forecast the
number of rooms that would be occupied under these conditions?
Q = 182.61129 .46733 x 275 .01333 x 2000 +.00155 x 15,000
Q =
50.69
c. Assuming that the advertising expense and the airfare were to be at the levels cited above (advertising
is currently $15,000 per day, the airfare charged is $2,000), what would be the profitmaximizing price
for the owners?
Q = 182.61129  .46733P .01333 x 2000 + .00155 x 15,000
Q = 179.20129  .46733P
P = 383.45771 – (Q ÷ .46733)
TR = PQ = 383.45771Q – (Q
2
÷ .46733)
MR = (dTR/dQ) = 383.45771 – (2Q ÷ .46733)
Set MR = MC = $55
383.45771 – (2Q ÷ .46733) = 55
Q = 76.75
P = 383.45771 – (76.75 ÷ .46733) = 219.23
d. Calculate the elasticity of demand for rooms at the profitmaximizing price you have calculated
above. Again, assume advertising is currently $15,000 per day, and the airfare charged is
$2,000.
Ed = (
∂
Q/
∂
P)(P/Q) =
 .46733 x (219.23 ÷ 76.75)
Ed = 1.33
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 Spring '08
 CyrilChang
 Economics, Supply And Demand, best price, Management Company

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