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problem5S06Key

problem5S06Key - Davis Spring 2006 E303 Problem Set#5 KEY 1...

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Davis, Spring 2006 KEY E303, Problem Set #5 1 . Chez What has recently opened a stand between the Commons and the School of Business. They sell mostly breakfast items, particularly coffee, and croissants. The operators are particularly concerned about the demand for croissants. In an effort to assess the wisdom of their pricing strategy, they asked an economist client to estimate the demand for croissants sold at Chez What. He came with the following information. Q = 102-2P - 10P c + 15P a Where P = the price of croissants, P c = the price of coffee sold at Chez What, and P a = the price of coffee sold at the nearby Alpine bagel bakery a. Suppose that the price of coffee at Chez What is \$1 and that the price of coffee at the Alpine Bagel Bakery is \$2 per cup. Calculate the inverse demand curve (e.g., express price as a function of quantity). Demand: Q = 102 – 2P – 10(1) + 15(2) = 102 – 2P +20 = 122 – 2P Inverse demand ____ P = 61 - .5Q ________________________ For parts b and c assume that the price of croissants is \$1.

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problem5S06Key - Davis Spring 2006 E303 Problem Set#5 KEY 1...

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