From table 4-1 in the text, which gives the price elasticity of demand for Florida Indian River Oranges, Florida interior oranges, and California oranges, as well as the cross price elasticities among them, determine:
(a) by how much the quantity demanded of each type would change if its price were reduced by 10%.
(b) whether the sellers’ total revenues would increase, decrease, or remain unchanged with the 10% decrease in price
(c) whether the sellers’ profits would increase, decrease, or remain unchanged with the 10% decrease in price
Table 4-1
Type of orange Florida Indian River Florida Interior California
Florida Indian River -3.07 1.56 0.01
Florida Interior 1.16 -3.01 0.14
California 0.18 0.09 -2.76
obviously, I would need to see table 4-1 to answer this question
To determine the changes in quantity demanded, total revenues, and profits for each type of orange, we need to use the price elasticity of demand values from Table 4-1.
(a) To calculate the changes in quantity demanded for each type of orange if its price were reduced by 10%, we multiply the price elasticity of demand for each type by -10% (since the price is reduced).
Florida Indian River Oranges:
Change in quantity demanded = -3.07 * (-10%) = 0.307
Florida Interior Oranges:
Change in quantity demanded = -3.01 * (-10%) = 0.301
California Oranges:
Change in quantity demanded = -2.76 * (-10%) = 0.276
(b) To determine whether the sellers' total revenues would increase, decrease, or remain unchanged with the 10% decrease in price, we need to consider the price elasticity of demand value for each type of orange.
If the absolute value of the price elasticity of demand is greater than 1, a decrease in price will result in an increase in total revenues. Conversely, if the absolute value of the price elasticity of demand is less than 1, a decrease in price will result in a decrease in total revenues.
Florida Indian River Oranges: The absolute value of -3.07 is greater than 1 which implies that a decrease in price will increase total revenues.
Florida Interior Oranges: The absolute value of -3.01 is greater than 1 which implies that a decrease in price will increase total revenues.
California Oranges: The absolute value of -2.76 is greater than 1 which implies that a decrease in price will increase total revenues.
Therefore, for all types of oranges, the sellers' total revenues would increase with the 10% decrease in price.
(c) To determine whether the sellers' profits would increase, decrease, or remain unchanged with the 10% decrease in price, we need to consider both the price elasticity of demand and the cost structure of the sellers. The table does not provide information about costs or the cost structure, so we cannot make a definitive conclusion about the impact on profits without that information.
To determine the changes in quantity demanded, total revenues, and profits for each type of orange, we need to use the price elasticity of demand and apply a 10% reduction in price.
(a) To calculate the change in quantity demanded for each type of orange, we will multiply the price elasticity of demand by the percentage change in price. Since we are assuming a 10% reduction in price, the percentage change in price would be -10%.
For Florida Indian River oranges:
Change in Quantity Demanded = Price Elasticity of Demand * Percentage Change in Price
= -3.07 * (-10%)
= 0.307
For Florida Interior oranges:
Change in Quantity Demanded = Price Elasticity of Demand * Percentage Change in Price
= -3.01 * (-10%)
= 0.301
For California oranges:
Change in Quantity Demanded = Price Elasticity of Demand * Percentage Change in Price
= -2.76 * (-10%)
= 0.276
Therefore, the quantity demanded for Florida Indian River oranges would increase by 0.307 units, for Florida Interior oranges would increase by 0.301 units, and for California oranges would increase by 0.276 units if their prices were reduced by 10%.
(b) To determine the impact on total revenues, we need to consider the price elasticity of demand. If the price elasticity of demand is greater than 1 in absolute value (i.e., > 1), a decrease in price will lead to an increase in total revenues.
For Florida Indian River oranges, the price elasticity of demand is -3.07, which is greater than 1 in absolute value. Therefore, a 10% decrease in price would result in an increase in total revenues.
For Florida Interior oranges, the price elasticity of demand is -3.01, which is also greater than 1 in absolute value. Therefore, a 10% decrease in price would lead to an increase in total revenues.
For California oranges, the price elasticity of demand is -2.76, which is also greater than 1 in absolute value. Hence, a 10% decrease in price would result in an increase in total revenues.
In summary, the sellers' total revenues would increase for all types of oranges with a 10% decrease in price.
(c) To determine the impact on sellers' profits, we need to consider both the change in quantity demanded and the cost structure of the sellers. If the decrease in price leads to a larger increase in quantity demanded compared to the decrease in price, profits may increase. However, without information on costs or other factors, we cannot definitively determine whether sellers' profits would increase, decrease, or remain unchanged with the 10% decrease in price based solely on the given price elasticity of demand data.