ProblemSet-2-100A

ProblemSet-2-100A - Department of Agricultural and Resource...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Department of Agricultural and Resource Economics University of California, Davis ARE ,._100A Problem Set 11 Winter 2010 Richard Howitt Quiz on January 22th ' 051MB. My “1410161“ “and JAIUMC :Lllc .' company away frOm‘ old ways that forced it into bankruptcy re- -'-' , organization last year. He has- . ousted several veteran execu- tives, flattenedlits bureaucracy and, according to people "who- have worked closely 'with Mr. ‘- Marchi'onne, injected an element . of fear into its ranks ‘ -. One of the more frustrating . ' ‘ problems for- Mr. Marchionne has .7 been the use of hefty rebates and, other incentives ‘to maintain sales—an issue. that has also , plagued General Motors Co. and ._ Ford Motor Go. over the years. - Last July, for example, when- the U..S government offered as . much as; $4, 500 in “cash for - - clunkers” rebates, Chrysler’s .' sales. chief at the time, Peter; - = Fong, .drew up -a plan to offer an: additional discount of $4, 500 a, from Chrysler; two people fainil -_ iar with the matter said. . ‘_; ' At the time, Chrysler’s bank:_ -3 ,. ruptcy had scared away custom-L" FIAT CEO Mr Marchionne is having problems with marketing and pricing at Chrysler as detailed in the WSJ article. 1. Assume that before the price reduction the demand for Chrysler 300s is: Q = 160.06 —2.73 P, where Q is measured in 100 cars /m0nth and P is measured in $1000/car (a) If the equilibrium price is 22 ($22,000), determine the quantity, and elasticity of demand. (b ) Determine the effect on total revenue for Chrysler caused by Mr Fong’s $4,500 price reduction (c) Calculate what the new elasticity of demand would have been after the price reduction ‘ (d) Should Mr Fong have been fired ? 2. Now assume that the demand for Chrysler 3005 has the functional form Q = 641 10—"-6 (a) Show the equilibrium quantity of Chrysler 3005. (b) Use Excel or your graphing calculator to Show What happens to total revenue under Mr Fong’s price reduction for this demand function (0) Calculate the elasticity of demand at the price reduction equilibrium. 3. An indifference curve for a consumer is defined by the function X Y = 48, where X and Y are the quantities of these two goods consumed and 48 is the amount of total utility along this indifference curve (0) Determine the marginal rate of substitution MRSXY when X: 4 and Y = 12. (b) If the price of X :5310 and Y = $4, plot the income constraint and graphically find the optimum utility that can be obtained at this income. (0) Calculate the minimum income needed to obtain a utility level of 48 (d) Show the effect on the consumer’s utility if the price of good X decreases to $7/unit. Department of Agricultural and Resource Economics University of California, Davis ARE 1100A Problem Set 11 Winter 2010 Richard Howitt Quiz on January 22th ' OLAG‘JAG. My Dani-3161; “a!“ .I_l.1U.VC :ulfl .' company away from‘ 51d ways that forced it into bankruptcy re- -'-' , organization last year. He has . ousted several veteran execu- tives, flattenedlits bureaucracy and, according to people "who- have worked closely 'with Mr. ‘- Marchi'onne, injected an element . of fear into its ranks ‘ -. One of the more frustrating ‘ ' problems for- Mr. Marchionne has . been the use of hefty rebates and , other incentives ‘to maintain sales—an issue that has also , plagued General Motors Co. and ._ Ford Motor Go. over the years. Last July, for example, when- the U5. government offered as . much as. $4, 500 in “cash for - - clunkers” rebates, Chrysler’s .' sales. chief at the time, Peter}; - Fong, .drew up -a plan to offer an: ~ additional discount of $4, 500 a from Chrysler; two people faniil ; iar with the matter said. . _: ' At the time; Chrysler’s banky. i ,. ruptcy had scared away custom-L" FIAT CEO Mr Marchionne is having problems with marketing and pricing at Chrysler as detailed in the WSJ article. 1. Assume that before the price reduction the demand for Chrysler 3003 is: Q = 160.06 ~2.73 P, where Q is measured in 100 cars /m0nth and P is measured in $1000/car (a) If the equilibrium price is 22 ($22,000), determine the quantity, and elasticity of demand. I (b ) Determine the effect on total revenue for Chrysler caused by Mr Fong’s $4,500 price reduction (6) Calculate what the new elasticity of demand would have been after the price reduction ‘ (d) Should Mr F ong have been fired ? 2. Now assume that the demand for Chrysler 3005 has the functional form Q = 641 P‘” (a) Show the equilibrium quantity of Chrysler 3005. (b) Use Excel or your graphing calculator to Show What happens to total revenue under Mr Fong’s price reduction for this demand function (0) Calculate the elasticity of demand at the price reduction equilibrium. 3. An indifference curve for a consumer is defined by the function X Y = 48, where X and Y are the quantities of these two goods consumed and 48 is the amount of total utility along this indifference curve (0) Determine the marginal rate of substitution MRSXY when X: 4 and Y = 12. (b) If the price of X :$10 and Y = $4, plot the income constraint and graphically find the optimum utility that can be obtained at this income. (0) Calculate the minimum income needed to obtain a utility level of 48 (CD Show the effect on the consumer’s utility if the price of good X decreases to $7/unit. ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern