Project1-8857.xlsx

# Problem 1 nume initial gallons new gallons initial

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Problem 1 Nume Initial Gallons New Gallons Initial Price New Price Elasticity Price \$2.841 \$2.851 Problem 2 Nume Initial Gallons New Gallons Cal Overhaut operates an ExxonMobil gas station franchise in Fitzhugh, MD. The price of gasoline is volatile and varies greatly from day to day. The price per gallon varies based on the seasonal blend of gasoline, which is determined by clean-air requirements, and Cal's pricing choices are limited to the profit margin for his price. He recently raised the price of gas by 1 cent per gallon, and his profit declined. Cal would like you to measure his business gains or losses based on the price of \$2.851 per gallon. Cal competes with a local brand on the opposite corner that typically sells gas for 4 to 5 cents per gallon less than his station. They are currently selling gasoline for \$2.851 per gallon. Recently, regular gasoline for delivery in New York harbor sold for \$2.729 per gallon. To the right are additional charges that Cal must pay on each gallon of gasoline: 1. Cal sold 3,600 gallons per day at a price of \$2.841 per gallon. He raised the price 1 cent to \$2.851 per gallon, and revenues and profits dropped. His station sold 3,200 gallons per day at \$2.851 per gallon. What is the price elasticity of demand? Can the elasticity be characterized as elastic, inelastic, or neither? What does this mean and why does it matter? Will revenues increase or decrease as a result of the price cut? By how much? Cal tells you that his fixed costs are \$50 per day. By how much did profits decline? (Profits are revenues minus all costs.) 2. After seeing your analysis of his decline in profit, Cal decides to lower the price of gas to \$2.831 per gallon. After this change, the volume sold increased to 4,000 gallons per day. He asks you to measure his business gains or losses at \$2.831.

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Initial Price New Price Elasticity: Price \$2.851 \$2.831 Problem 3 Nume Initial Gallons New Gallons Initial Price New Price Elasticity: Price What is the price elasticity of demand? Can the elasticity be characterized as elastic, inelastic, or neither? What does this mean and why does it matter? Will revenues increase or decrease as a result of the price cut? By how much? Cal tells you that his fixed costs are \$50 per day. By how much did profits increase or decline? (Profits are revenue minus all costs.) 3. After seeing the result, Cal decides to lower his price once again to \$2.821 per gallon. Once again,
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