Reading Assignment – Chapter 4 Demand elasticity Question 4 Chapter 5 Demand est
ID: 1193379 • Letter: R
Question
Reading Assignment –
Chapter 4 Demand elasticity
Question 4
Chapter 5 Demand estimation and forecasting
Question 7, Forecasting
Chapter 6 The theory and estimation of production
Question 8
Chapter 7 The theory and estimation of cost
Question 9
4. Discuss the relative price elasticity of the following products: a. Mayonnaise b. A specific brand of mayonnaise c. Chevrolet automobiles d. Jaguar automobiles e. Washing machines f. Air travel (vacation) g. Beer h. Diamond rings
7. Office Enterprises (OE) produces a line of metal office file cabinets. The company's econo- mist, having invesüigated a large number of past data, has established the following equa- tion of demand for these cabinets Q-10,000 608-100P+ 50C where O = Annual number of cabinets sold B Index of nonresidential construction Demand Estimation and Forecasting P = Average price per cabinet charged by OE C = Average price per cabinet charged by OE's closest competitor It is expected that next year's nonresidential construction index will stand at 160, OE's average price will be $40, and the competitor's average price will be $35. a. Forecast next year's sales b. What will be the effect if the competitor lowers its price to $322 If it raises its price to $36: c. What will happen if OE reacts to the decrease mentioned in part b by lowering its price to $37? d. If the index forecast was wrong, and it turns out to be only 140 next year, what will be the effect on OE's sales?Explanation / Answer
Answer 7.
Qunatity = 10000+60B-100P+50C
A) Next year's sales when B=160, P=40 and C=35
Quantity =10000+60(160)-100(40)+50(35) =17,350
B) If the competitor lowers price to $32, i.e C=32
Quantity =10000+60(160)-100(40)+50(32) =17,200
If raises to $36,
Quantity =10000+60(160)-100(40)+50(36) =17,400
C) Quantity =10000+60(160)-100(37)+50(32) =17,500
D) Quantity would fall by 1200 units if index of forecast was wrong.
60(160)=9,600
60(140)=8,400
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