Which of best approximates the price elasticity of demand

Question

Assignment:

Problems 1

The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $30, $20, $10, $5, and $3 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $10, $20, $30, $38, and $44 (one buyer at each price).

For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied.

Price	Quantity Demanded	Quantity Supplied
($ per widget)	(widgets)	(widgets)
$3
$5
$10
$20
$30
$38
$44

In this market, the equilibrium price will be per widget, and the equilibrium quantity will be 1, 5, 0, 2, 4, 3 widgets.

Problems 2

Suppose that due to the development of a new flu vaccine for a specific type of flu, the demand for hand sanitizer has decreased by 50%.
Smith & Smith, a company that produces and sells hand sanitizer, should increase or decrease production of its hand sanitizer.

Suppose that there is evidence that a new flu, H15N9, is slowly developing and spreading.

True or False: Smith & Smith should significantly decrease production capacity by getting rid of capital equipment.

• True
• False

Problems 3

George has been selling 5,000 T-shirts per month for $8.50. When he increased the price to $9.50, he sold only 4,000 T-shirts.

Which of the following best approximates the price elasticity of demand?

• -1.8
• -2.2
• -2.6
• -2

Suppose George's marginal cost is $5 per shirt.

Before the price change, George's initial price markup over marginal cost was approximately 0.4941, 0.4118, 0.4529, 0.3706. George's desired markup is 0.55, 0.65, 0.45, 0.5

Since George's initial markup, or actual margin, was less or greater than his desired margin, raising the price was not profitable or profitable.

Problems 4

To conduct an experiment, a movie theater increased movie ticket prices from $9 to $10 and measured the change in ticket sales. The theater then gathered data over the following month to determine whether the price increase was profitable. Assume total costs to the theater are the same, whether the price of a ticket is $9 or $10.

In order for the ticket price to have been profitable over the month, the elasticity of demand for movie tickets must be elastic or inelastic.

Demand curves become less or more elastic in the long run. This means that the ticket price increase will likely be more or less profitable in the long run.

Problems 5

An end-of-aisle price promotion changes the price elasticity of a good from -2 to -3. Suppose the normal price is $34, which equates marginal revenue with marginal cost at the initial elasticity of -2.

What should the promotional price be when the elasticity changes to -3? (Hint: In other words, what price will equate marginal revenue and marginal cost?)

• $33.15
• $25.50
• $35.70
• $30.60

Problem 6. Which of the following best explains a company may offer free chargers to its customers when a smart phone is purchased?

• Phone chargers and phones are complements, so offering free smart phone chargers should increase the demand for the smart phones.
• Phone chargers and phones are substitutes, so offering free smart phone chargers should decrease the demand for the smart phones.
• Phone chargers and phones are substitutes, so offering free smart phone chargers should increase the demand for the smart phones.
• Phone chargers and phones are complements, so offering free smart phone chargers should decrease the demand for the smart phones.