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Question:
All questions utilize the multivariate demand function for Smooth Sailing
sailboats in C6 on text page 83, initially with:
P = $9500 P = $10000 I = $15000 A = $170000 W = 160
This function is:
Qs = 89830 -40P +20P +15P +2I +.001A +10W
Where Q
P
P
P
1. Use the above to calculate the arc price elasticity of demand between P
= $5000 and P = $4000. The arc elasticity formula is:
1. Calculate the quantity demanded at each of the above prices and
revenue that will result if the quantity is sold (fill in table below).
P Q Revenue
$5000
$4000
1. Marketing suggests lowering the price P from $5000 to $4000. The size
of the elasticity coefficient in #1 should tell you what is likely to happen to
revenue. Explain why this is (or is not) a good marketing suggestion
from a revenue viewpoint (note: your answer in #1 and the calculations
in #2 should be giving the same message). If the implications in #1 and
#2 differ, does the difference make sense (or did you make a mistake in
#1 or #2)?
X Y
S X Y
s=quantity purchased
s= the price of Smooth Sailing sailboats
x= the price of company X’s sailboat
y= the price of company’s Y’s motorboat
I= per capita income in dollars
A= dollars spent on advertising
W=number of favorable days of weather in the southern region of the United States
S
S
S S
S
