MGMT 407.11 Spring 2009 EXAMINATION 2 NAME_______________________ This is an open-book and open-notes examination. Full credit will be given only when the entire solution process and calculations are shown. Assume prior results are correct in multipart questions. 1. (25 points and 10 minutes) Suppose your consulting economist says you are operating in the inelastic portion of your demand curve. Knowing only the above and the demand curve depicted on graph D on the board, answer the following questions. (5) a. In which direction should you change your price? (5) b. Given your price change, will quantity sold rise or fall? (5) c. Given you answers to “a” and “b”, will your total revenue rise or fall? (10) d. Using your answers above, shade the rise in revenue and label the area as “H.” Shade the loss in revenue and label the area as “G.” 2. (50 points and 25 minutes)Suppose Q = f(Y, A, R, P) where income (Y) elasticity is 5, advertising (A) elasticity is 4, cross-price (R) elasticity is 1 and price elasticity is -6. (5)
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