Economics : Managerial Economics

Managerial EconomicsStudents Name:Institutional Affiliation:Instructor:Date:Problem Set #21) Suppose the demand curve for a good is given by Qxd =2,000 4 Px + 0.04Pz , where Pz =400.a. What is the own price elasticity of demand when Px =$154? Is demand inelasticor elastic? What would happen to the firms revenue if it decided to charge aprice below $154?Since Qxd =2,000 4 Px + 0.04PzTherefore, Qxd =2,000 4 ($154) + 0.04 ($400)Hence Qxd = 1400 units.Generally, Price elasticity of demand, Ped = Qxd Px/ Px QxHence Ped of X = {(1400 0) 154}/ {(154 0) 1400} = 1.Such a value for price elasticity of demand implies unitary or indifference.Given the value above, whatever directional change on the price level of commodity X wouldnot cause a shift in the total revenue of the firm.b. What is the own price elasticity of demand when Px = $354? Is demand inelasticor elastic? What would happen to the firms revenue if it decided to charge aprice above $354?Remember, Qxd =2,000 4 Px + 0.04PzHence, Qxd =2,000 4 ($354) + 0.04 ($400)Implying that Qxd = 600 units.Therefore, /Ped/ = {(600 1400) 354}/ {(354 154) 600 = 2.36Since the absolute value of the Ped is greater than 1, it is right to conclude that the demand forproduct X is elastic. And given the elasticity condition in demand, an increase in price to a levelbeyond $354, would imply a decrease in the revenue.c. What is the cross price elasticity ...


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