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EMBA Managerial Economics_Midterm Practice Problems_Key_2008

# EMBA Managerial Economics_Midterm Practice...

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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 profit-maximizing 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 profit-maximizing 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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EMBA Managerial Economics_Midterm Practice...

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