Posted by Talia on .
I need assistance with the following question:
A researcher estimated that the price elasticity of demand for automobiles in the United States is -1.2, while the income elasticity of demand is 3.0. Next year, U.S. auto makers intend to increase the average price of automobiles by 5 percent, and they expect consumers' disposable income to rise by 3 percent.
(a) If sales of domestically produced automobiles are 8 milion this year, how many autombiles do you expect US automakers to sell next year?
(b) By how much should domestic auto makers increase the price of automobiles if they wish to increase sales by 5 percent next year?
I think you should repost this question with the subject saying:
DrBob222 PLease help me with Managerial Economics
because I wish I could help you but I can't
The price elasticity is (%change in Q)/(%change in P). So, use algebra.
(X/5) = -1.2 Solve for X (which is the percentage change in Q.
Income elasticity is (%change in Q)/(%change in income). Repeat the above steps.
(To keep things simple, I would assume the price increase and income increase occur simultaneously, and therefore move off the same base. Otherwise, you need to assume a stacking order (e.g., price first then income).
Now simply add the percentage changes to get the net change.
I am using the textbook Managerial Economics 8th ed. by Christopher Thomas & Charles Maurice. I am having a problem understanding the concept and how to solve a problem in chapter 3 of the text. It is talking about how to figure marginal benefit and marginal cost. On page 111 of the text it has a graph that is asking you to figure out at 60 units of activity, what is the marginal benefit and marginal cost. Dr. Bob222, please help ,me with Managerial Economics. Thanks