## the demand elasticity

Question description

Question 1

Suppose your company runs a shuttle business at a hotel to and from the local airport. The cost for customer load are:

1. customer: \$30.00 2 customers \$32.00 3 customers \$35.00 4 customers \$ 38.00 5 customers \$42.00 6 customers \$48.00 7 customers \$57.00

8 customers \$68.00

Q TC MC Total Revenue Profit

1 30 ? 10 -20

2 32 ? 20 -12

3 35 ? 30 -5

4 38 ? 40 2

5 42 ? 50 8

6 . 48 ? 60 12

.7 57 ? 70 13 .

8 68 ? 80. 12

Question 2

Suppose your company runs a shuttle business of a hotel to and from the local airport. The costs for different customer loads are:

1 customer \$30. 2 customers \$32. 3 customers \$35. 4 customers \$38

5 customers \$ 42. 6 customers \$ 48 7 customers \$ 57 8 customers \$68

I you are compensated \$10. per ride, what customer load would you choose?

Question 3

Suppose the number of firms you compete with has recently increased. You estimated that as a result of the increased competition, the demand elasticity has increased from -2 to -3 i.e., you face more elastic demand. You are currently charging \$10.00 for your product. If demand elasticity is -3, you should charge (X).

Question 4

An amusement park, whose customer set is made up of two markets adults and children, has developed demand schedules as follows:

The marginal operating cost of each unit of quantity is \$5.00, because marginal cost is a constant, so is average variable cost. Ignore fixed cost. The owner of the amusement park want to maximize profits.

Quantity

5 6 15

6 14 18

7 13 16

8 12 14

9 11 12

10 10 10

11 9 8

12 8 6

13 7 4

14 6 2

Calculate the price, quantity, and profit if: The amusement park charge a different price in the adult market.

Please use whole numbers for quantity (i.e. 10,27,4).

Price Quantity Total Marginal Marginal Total. mr/mc Profit

rev rev cost cost

? 6 84 ? 5 30 ? 34

13 ? 91 7 5 35 2 56

12 8 96 5 5 40 0 ?

? 9 99 3 5 40 -2 54

10 ? 100 1 5 50 -4 50

9 11 99 -1 5 55 -6 ?

? 12 96 -3 5 60 -8 36

7 ? 91 -5 5 65 -10 26

6 14 84 -7 5 70 -12 ?

5 15 75 -9 5 75 -14 0

Question 5

An amusement park, whose customers set is made up of two markets, adults and children, has developed schedules as follows:

The marginal operating cost of each unit of quantity is \$5.00. Because marginal cost is a constant, so is average variable cost. Ignore fixed cost. The owners of the amusement park want to maximize profits.

Quantity

5 15 20

6 14 18

7 13 16

8 12 14

9 11 12

10 10 10

11 9 8

12 8 6

13 7 4

14 6 2

Calculate the price, quantity, and profit: The amusement park charge a different price in the children’s market.

price quantity total rev marginal rev marginal cost total cost mr/mc profit

14 2 28 ? 5 10 ? ?

13 ? 52 12 5 20 7 32

? 6 72 10 5 30 5 42

11 8 88 8 5 40 3 48

10 10 100 6 5 50 1 ?

9 ? 108 4 5 60 -1 48

? 14 112 2 5 70 -3 42

7 16 112 0 5 80 -5 ?

6 ? 108 -2 5 90 -7 18

? 20 100 -4 5 100 -9 0

Question 6

An amusement park, whose customers set is made up of two markets, adults and children, has developed a demand schedule as follows:

The marginal operating cost of each unit of quantity is \$5.00, because marginal cost is a constant, so is average variable cost. Ignore fixed cost. The owners of the amusement park want to maximize profits.

Quantity

5 15 20

6 14 18

7 13 16

8 12 14

9 11 12

10 10 10

11 9 8

12 8 6

13 7 4

14 6 2

Calculate the price, quantity, and profit if: The amusement park charges the same price in the two markets combined.

price quantity total rev marginal rev marginal cost total cost mr/mc profit

14 8 112 ? 5 40 ? 72

? 11 143 10.33 5 55 5.33 88

12 ? 168 8.33 5 70 3.33 98

11 17 187 6.33 5 85 1.33 ?

? 20 200 4.33 5 100 -0.67 100

8 20 208 0.33 5 130 -4.64 ?

? 29 203 1.67 5 145 -6.67 58

6 ? 192 3.67 5 160 -8.67 ?

5 35 175 7.67 5 190 12.67 -38

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