Economics Managerial Problem Set problems

1) Chapter 3, Problem #3

2) Chapter 3, problem #4

3) Suppose the demand curve for a good is given by Qxd =2,000 – 4 Px + .04Pz , where Pz = 400. a. What is the own price elasticity of demand when Px =$154? Is demand inelastic or elastic? What would happen to the firm’s revenue if it decided to charge a price below $154? b. What is the own price elasticity of demand when Px = $354? Is demand inelastic or elastic? What would happen to the firm’s revenue if it decided to charge a price above $354? c. What is the cross price elasticity of demand between X and Z when Px = $154? Are X and Z substitutes or complements?

4) Chapter 3, problem #9

5) You are a division manager at Chevy. If your marketing department determines that the semiannual demand for the Malibu is Q = 50,000 – 1.6P, what price should you charge to maximize revenues from sales of the Malibu?

6) You are the manager of a small computer company. You look back at your sales data and find that in March you sold 200 computers when the price was $800, and during your April sale, you sold 250 computers at a price of $750. What is your own price elasticity of demand? You are thinking about raising prices to $850 in June. Should you? Explain why or why not.

7) The 2012 sales and profits of seven clothing companies were as follows: Firm Sales ($ billions) Profit ($ billions) Maxx 5.7 .27 Bleu 6.7 .12 Golden .2 0.00 Triex .6 .04 Chateau 3.8 .05 L&T 12.5 .46 Eastview .5 0.00

a) Calculate the correlation coefficient between profit and sales. How are profit and sales related to each other? (Hint: use excel). b) Calculate the sample regression line, where profit is the dependent variable and sales is the independent variable. (Hint: use excel). c) Estimate the 2012 average profit of a clothing firm with 2012 sales of $.2 billion. d) Can the regression line be used to predict a clothing firm’s profit in 2026? Explain.

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