Chelsea Izkowski owns a fast food restaurant named Mickey Doodle's Burgers. She recently took a course in managerial economics and is eager to apply her knowledge to the management of her business. She decides to estimate the price elasticity (EP) and income elasticity (EI) of demand for DoodleBurgers and the cross-price elasticity (EDF) of demand for DoodleBurgers with respect to the price of FiddleBurgers, her chief competitor. In order to estimate these elasticities, she collects the information that is listed in the table below, where Q is the quantity of DoodleBurgers sold in a week, PD is the price of a DoodleBurger during the week, I is per capita annual income, and PF is the price of a FiddleBurger during the week. Use this information to calculate the arc price, income, and cross-price elasticities of demand for DoodleBurgers.
Q
1,000
1,100
983
831
PD
$1.20
$1.20
$1.20
$1.40
I
$10,000
$10,000
$11,000
%10,000
PF
$1.00
$1.10
$1.00
$1.00
Chelsea Izkowski owns a fast food restaurant named Mickey Doodle's Burgers. She recently took a course in managerial economics and is eager to apply her knowledge to the management of her business. She decides to estimate the price elasticity (EP) and income elasticity (EI) of demand for DoodleBurgers and the cross-price elasticity (EDF) of demand for DoodleBurgers with respect to the price of FiddleBurgers, her chief competitor. In order to estimate these elasticities, she collects the information that is listed in the table below, where Q is the quantity of DoodleBurgers sold in a week, PD is the price of a DoodleBurger during the week, I is per capita annual income, and PF is the price of a FiddleBurger during the week. Use this information to calculate the arc price, income, and cross-price elasticities of demand for DoodleBurgers.
|
Q |
1,000 |
1,100 |
983 |
831 |
|
PD |
$1.20 |
$1.20 |
$1.20 |
$1.40 |
|
I |
$10,000 |
$10,000 |
$11,000 |
%10,000 |
|
PF |
$1.00 |
$1.10 |
$1.00 |
$1.00 |
Related textbook solutions
Related questions
| Price Elasticity | Income Elasticity | Cross-Price Elasticity | |||
| |ep| > 1 | Elastic | ei < 0 ei > 0 | Inferior good Normal good | ec < 0 | Complementary good |
| |ep| < 1 | Inelastic | 0< ei < 1 ei > 1 | Necessity Luxury | ec > 0 | Substitute good |
| |ep| = 1 | Unit Elastic | ||||
Technical Questions
Using the elasticity table (above), you have the following information for your product: (1) The price elasticity of demand is -2.0; (2) The income elasticity of demand is 1.5; and, (3) The cross-price elasticity of a related good is -3.5. What can you determine about consumer demand for your product from this information?â¨â¨
Using the elasticity table (above), you have the following information for your product: (1) The price elasticity of demand is -.9; (2) The income elasticity of demand is .5; and, (3) The cross-price elasticity of a related good is 2.0. What can you determine about consumer demand for your product from this information?
What are the three determinants of price elasticity of demand
What are the three determinants of price elasticity supply?
Name and describe the three kinds of product innovation.
Name and describe a marketing approach (that we discussed in class) that can be used to understand consumer behavior and/or estimate demand.
Name and describe a statistical approach (that we discussed in class) or technique that can be used to understand consumer behavior and/or estimate demand.
Name a psychological model (that we discussed in class) that can be used to understand consumer behavior and/or estimate demand.
Name and describe the six types of consumers.
How do fixed and variable costs differ in the short-run and long-run?
Jim is considering quitting his job and using his savings to start a small business. He expects that his costs will consist of a lease on the building, inventory, wages, electricity, and insurance.
11A. Identify which costs are explicit and which are opportunity (implicit) costs.
11B. Identify which costs are fixed and which are variable.
What is the law of diminishing returns? What are economies of scale and diseconomies of scale? Be sure to note the terms apply to the short run and the long run.
Application Questions
1. How can entrepreneurs shift elasticity of demand and elasticity of supply? Draw on the three determinants for each in your answer.
2. How can entrepreneurs be innovative in production for the short-term and the long-term? Draw on concepts like diminishing returns, diseconomies of scale, and economies of scale in your answer.
