week 2 assignment marketing class.docx

According to douglas the price elasticity of demand

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- According to Douglas, the price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. To calculate this we would use the formula: Price elasticity of demand = dQx/dPx * Px/Qx which would appear as follows: (- 54 * 0.95/37.9) = - 1.35 which simply would mean that if everything else is being held constant as X price increases by 1% then the quantity that is demanded of Y would decrease respectively by 1.35%. b. Derive an expression for the inverse demand curve for Newton’s Donuts. Describe your answer and show your calculations. -According to the text the inverse demand function is calculated by using the formula Px = f (Qx). Then the rest would be determined as following: Qx = -14 – 54Px + 45Py + 0.62Ax. And Px would be calculated using the formula, Px=1/54 (-Qx – 14 + 45 (0.64)
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Week 2 Assignment 6 +0.62 (120). Next you would then use Px=1/54 (-Qx – 14 + 28.8 + 74.4). To get to the final equation Px=1/54 (-Qx +89.2). c. If the cost of producing Newton’s Donuts is constant at $0.15 per donut, should they reduce the price and thereafter, sell more donuts (assuming profit maximization is the company’s goal)? -If the company wanted to maximize profits of the company then decreasing the price would definitely be the way to go. The reason for saying this is because the price elasity is -1.35 which as stated earlier means that oppositely as the price decreases by 1% the demand would increase by 1.35 percent respectively. The higher the demand results in more money for the company overall. d. Should Newton’s Donuts spend more on advertising? -Newton should not spend more on advertising due to the simple fact that he already has a negative demand effect as price increases now. If they were to ever be able to consider possibly lowering the price this would provide more to spend on marketing but less on products to make revenue. So the best choice would be to keep spending where it is. References Douglas, E. (2012).Managerial Economics(1st ed.). San Diego, CA: Bridgepoint Education.
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