Chapter_3_Exercises

# Chapter_3_Exercises - Chapter 3 Exercise Questions 1...

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Chapter 3: Exercise Questions 1. Suppose the monthly demand for soda by a consumer is given by P Q 8 10 - = . a. If the price of soda is \$1 per can, how many sodas will the consumer purchase in a typical month? b. What is the elasticity of demand for soda? 2. The following estimates have been obtained for the market demand for cereal: M A P Q ln 3 . 1 ln 75 . 0 ln 68 . 0 01 . 9 ln - + - = , where Q is the quantity of cereal, P is the price of cereal, A is the level of advertising, and M is income. Based on this information, determine the effect on the consumption of cereal of a. A 5 percent reduction in the price of cereal. b. A 4 percent increase in income. c. A 20 percent reduction in cereal advertising. 3. As the manager of a local hotel chain, you have hired an econometrician to estimate the demand for one of your hotels ( H ). The estimation has resulted in the following demand function: M P P P P Q OH SE C H H 01 . 8 . 0 25 . 2 5 . 1 000 , 2 + + - - - = , where H P is the price of a room at your hotel, C P is the price of concerts in your area, SE P is the price of sporting events in your area, OH P is the average room price at other hotels in your area, and M is the average income in the United States. What would be the impact on your firm of a. A \$500 increase in income? b. A \$10 reduction in the price charged by other hotels? c. A \$7 increase in the price of tickets to local sporting events? d. A \$5 increase in the price of concert tickets, accompanied by an \$8 increase in income? 4. The demand for company X’s product is given by y x x P P Q 4 3 12 + - = . Suppose good X sells for \$3.00 per unit and good Y sells for \$1.50 per unit. a. Calculate the cross-price elasticity of demand between goods X and Y at the given prices. b.

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Chapter_3_Exercises - Chapter 3 Exercise Questions 1...

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