8. Sony cut the price of its 42” HDTV plasma TV from $3000 in the first quarter of 2005 to $2500 in the second quarter. Sales increased from 25,000 to 30,000.

a) Based on this information, what is your best estimate of the price elasticity of demand?

b) How valid is this procedure for estimating price elasticity of demand? When will it give reasonable estimates and when will it give misleading ones?

c) Panasonic decided to hold the price of its 42” plasma TV at $3000. Their sales fell from 15,000 to 12,500. What is your best estimate of the cross-price elasticity of demand for Panasonic plasma sets?

a) Based on this information, what is your best estimate of the price elasticity of demand?

b) How valid is this procedure for estimating price elasticity of demand? When will it give reasonable estimates and when will it give misleading ones?

c) Panasonic decided to hold the price of its 42” plasma TV at $3000. Their sales fell from 15,000 to 12,500. What is your best estimate of the cross-price elasticity of demand for Panasonic plasma sets?

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