Question: Question 1 : After a careful statistical analysis, the Chidester Company concludes the demand function for its product is Q= 500 - 3P + 2Pr

Question 1: After a careful statistical analysis, the Chidester Company concludes

the demand function for its product is

Q= 500 - 3P + 2Pr + 0.1I

Where (Q) is the quantity demanded of its product, (P) is the price of its product, (Pr)

is the price of its rival's product, and (I) is per capita disposable income (in dollars).

At present, P = $10, Pr = $20 and I = $6,000.

a. What is the price elasticity of demand for the firm's product?

b. What is the income elasticity of demand for the firm's product?

c. What is the cross-price elasticity of demand between its product and its rival's

product?

d. What is the implicit assumption regarding the population in the market?

Question 2: The Johnson Robot Company's marketing manager estimate that the

demand curve for the company's robots in 2012 is

P = 3000 - 40 Q

Where P is the price of a robot and Q is the number sold per month.

a. Derive the marginal revenue curve for the fi rm.

b. At what prices is the demand for the firm's product price elastic?

c. If the firm wants to maximize its dollar sales volume, what price should it charge?

Question 3 : If the Prices for laptops are described by the following price equation:

Ln P = 7 +.35 Ln (D) +.3 Ln (B) -.25 Ln (W),

Where P is price in dollars, D is the size of hard disk in gigabytes, B is the battery life in hours, and W is the weight of the laptop in pounds. Your current product has a 10 Gb harddisk, battery life of 2 hours, and a weight of 5 pounds. It sells for $2000.

If you modify the laptop to include an improved battery, the battery life would increase to 3 hours, but the weight would also increase to 6 pounds. By how much percentage the laptop's price would increase? What is the new price?

Question 4: Suppose that a manufacturer sells a product through an upscale

boutique and, with a different brand name, through a discount retailer. The elasticity

of demand at the boutique is -1.2, and at the discount retailer it is -2.6. If the optimal

price at the boutique is $85, what price (PD) should be charged at the discount

retailer?

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