# 09HWS4 - Economics 104A Solution for Problem Set#4 Winter...

• Notes
• jayrapkc
• 4
• 100% (1) 1 out of 1 people found this document helpful

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

Economics 104A Solution for Problem Set #4 Winter 2009 1. Suppose that a company hires you to advise them on their pricing policy. One of the things the company would like to know is how much a 5% increase in their price is likely to reduce sales. a) What types of information would you need to help the company with their prob- lem. Answer: To figure out the percentage reduction in sales, you would need infor- mation about the price elasticity of demand. To figure out the absolute change, you would also need the price the company is currently charging and the quantity it is currently selling. b) Explain why each of these types of information would be important to you. Answer: Notice that R = P × Q is the total revenue (sales). By taking total differential on both sides, we have dR = QdP + PdQ dR R = dP P + dQ Q . The price elasticity of demand together with the given percentage change in price determines the percentage in quantity sold. Using the percentage changes

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

This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• 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.

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

• 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.

Dana University of Pennsylvania ‘17, Course Hero Intern

• 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.

Jill Tulane University ‘16, Course Hero Intern