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Talk to an Expert| Category | Assignment | Subject | Economics |
|---|---|---|---|
| University | Open University Malaysia (OUM) | Module Title | BPME7103 Advanced Managerial Economics |
Edward operates a pizza shop, selling local-flavoured pizzas. The demand function is given as:
Qx = 4000 - 1000Px+25Y
where:
Qx = quantity of pizza demanded,Px = price of pizza ($35) andY = average consumer's income ($1500)
a. Formulate the demand curve function for pizza (express price as a function of quantity) and calculate the quantity demanded for pizza.(3)
b.Compute the difference in the total revenue that can be earned at the current price and at $20.75. Atwhich price is total revenue the highest? Explain.
c. Based on the answers in (b), advise Edward accordingly.(3)
[Total: 10 marks]
The Stopdecay Company sells an electric toothbrush for $25.
Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decayfighter, reduced the price of its electric toothbrush from $35 to $30. As a result, Stopdecay's sales declined by 1,500 units per month.
a. What is the arc cross elasticity of demand between Stopdecay's toothbrush and Decayfighter's toothbrush? What does this indicate about the relationship between the two products?
b. If Stopdecay knows that the arc price elasticity of demand for its toothbrush is -1.5, what price would Stopdecay have to charge to sell the same number of units as it did before the Decayfighter price cut? Assume that Decayfighter holds the price of its toothbrush constant at $30.
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