...Market Demand and Elasticity Tank Up is a local quick mart gas station on Route 12, a fairly busy highway most days of the week. Tank Up is the last station eastbound just prior to the entrance ramp to the expressway. This location benefits Tank Up business because drivers often stop in to fill their gas tank and grab a cup of coffee before beginning their journey on the expressway. To increase profits, I am evaluating a price change for coffee. Historically Tank Up sells approximately 300 cups of coffee per day. At $0.79 per cup, annual coffee revenue is $86,268. Options to increase revenue include a) an increase in sales prompted by a price reduction or b) an increase in revenue through a price increase. For the purpose of this evaluation, it is assumed all factors beyond cost per cup and consumer demand are held constant. The supply costs for coffee beans, creamer, cups and other supplies are not a factor in this assessment. Below are the factors considered. Price Elasticity of Demand As noted above, annual coffee revenues are estimated at $86,268. To evaluate price elasticity of demand, a calculation was required to determine if an adjustment in price (increase/decrease) resulted in a change in consumer demand. The first step was to evaluate the impact of increased sales because of price reduction. When reducing the price per cup 13% (to $0.69) sales increased 7% (320 cups per day). Although demand increased, annual revenue declined 7% ($5,897). This change...
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...10.1 MONOPOLY A Rule of Thumb for Pricing Chapter 10: Market Power: Monopoly and Monopsony We want to translate the condition that marginal revenue should equal marginal cost into a rule of thumb that can be more easily applied in practice. To do this, we first write the expression for marginal revenue: Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • Microeconomics • Pindyck/Rubinfeld, 7e. 9 of 50 10.1 MONOPOLY A Rule of Thumb for Pricing Chapter 10: Market Power: Monopoly and Monopsony Note that the extra revenue from an incremental unit of quantity, ∆(PQ)/∆Q, has two components: 1. Producing one extra unit and selling it at price P brings in revenue (1)(P) = P. 2. But because the firm faces a downward-sloping demand curve, producing and selling this extra unit also results in a small drop in price ∆P/∆Q, which reduces the revenue from all units sold (i.e., a change in revenue Q[∆P/∆Q]). Thus, Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • Microeconomics • Pindyck/Rubinfeld, 7e. 10 of 50 10.1 MONOPOLY A Rule of Thumb for Pricing Chapter 10: Market Power: Monopoly and Monopsony (Q/P)(∆P/∆Q) is the reciprocal of the elasticity of demand, 1/Ed, measured at the profit-maximizing output, and Now, because the firm’s objective is to maximize profit, we can set marginal revenue equal to marginal cost: which can be rearranged to give us (10.1) Equivalently, we can rearrange this equation to...
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...Axia College Material Appendix B Price Elasticity and Supply & Demand Fill in the matrix below and describe how changes in price or quantity of the goods and services affect either supply or demand and the equilibrium price. Use the graphs from your book and the Tomlinson video tutorials as a tool to help you answer questions about the changes in price and quantity |Event |Market affected by event |Shift in supply, demand, or both. |Change in equilibrium | | | |Explain your answer. | | |Frozen orange crops in California |Orange juice |Supply (left)—Not as many available |Price will increase and quantity will | | | |oranges to offer consumers. |decrease. | |Hurricanes in the Gulf Coast |Oil refineries, Petroleum industry |Production of oil stops. Supply |Prices increase due to instability in | | | |forecast decreases (shifts left) and |forcasting productions. | | | |demand remains | ...
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...is the Centrally planned economy in which the government of that respective country decides how economic resources will be allocated. The second economy is a market economy in which the decisions of households and firms interacting in markets allocate economic resource. The third and final in the mixed economy in which most economic decisions come from buyers and sellers in markets but where the government plays a major role in allocating resources. our economy is slightly a mixed one .(Hubbard,R& O Brian,A, 2009) Supply and demand is one of the most basic Ideas of economics and it is the core of the market economy. Demand simply means how of a product or service is wanted by a consumer. The quantity demanded is the amount that people are willing to buy at a given cost. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. (Hubbard,R& O Brian,A. 2009) “The difference between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand” ( Hubbard,R& O Brian,A, 2009). Without the law of supply and demand, we would not have an economy to speak of. So the answer is yes. Elasticity is a...
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...Economic Profile on the Oil and Gas Industry The oil and gas industry is one of the most talked about industries today, at least in my town it is. Everywhere I go I hear people talking about the rise or fall in gas prices or how the cost of a barrel of crude oil has just gone up or down .10 cents. I also hear about how the current hurricane season could pose a threat to the oil industry, as it did last year with hurricane Katrina, putting oil refineries under water or causing extreme damage to them. In this essay I am going to discuss the shifts and price elasticity of supply and demand in the oil and gas industry. I am also going to discuss the oil and gas industry’s positive and negative externalities, wage inequality, and monetary and fiscal policies. Lastly, I will discuss the economic affects and influence on the oil and gas industry. Shifts and Price Elasticity of Supply and Demand The price elasticity is the affect of the price for a good on the demand of that good. If consumers are not affected by the change in price then this good would be referred to as inelastic. If consumers are affected by the change in price then this good would be referred to as elastic. The oil and gas industry is inelastic when the prices rise because, although consumers slightly reduce their consumption of oil and gas, consumers still purchase oil and gas. With gasoline prices in the U.S. approaching an average $3 a gallon, Americans are moaning about the rising cost, but so far they are...
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...Explain the relationship between the price elasticity of demand and total revenue. What are the impacts of various forms of elasticities (elastic, inelastic, unit elastic, etc.) on business decisions and strategies to maximize profit? Explain using empirical examples. The consumers and producers behave differently. To explain their behavior better economists introduced the concepts of supply and demand. In short words, the law of demand states that with price increase quantity demanded of a good or services decreases, and the law of supply states that quantity of a good produced increase if the market price of that good increases. Of course, it is just general rule and does not explain all varieties of factors impacting the supply and demand model. There for, the quantitative measurement such as elasticity was introduced to provide more detail about market behavior. Price elasticity describes what happens to the demand for a product as its price changes. If the prices for the product rise the demands will decrease. Price elasticity of demand tells us how much the quantity demanded decreases. It is important topic in economic. Market is always changing and if price for the product will change elasticity tells us how much other things will change. The relationship between price elasticity and total revenue is important. Based on analysis of elasticity management will determine the necessary changes on pricing policy for goods and services. To maximize company’s revenue the...
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... and QS=40+2P. Suppose further that the total cost curve for a representative firm in the industry is given by TC = 100+4q+q2, with MC=4+2q. a. Sketch a double graph that depicts the market supply and demand in equilibrium in conjunction with individual firm costs and output choice. Does not need to be to scale. Label all of your answers to b. b. Calculate the short-run equilibrium market price, quantity, individual firm output and firm profit level. Show your work. c. Calculate the long-run equilibrium market price, quantity, individual firm output and number of firms in the industry. Draw and label in a new graph the double graph depicting this equilibrium. Page 1 of 5 2. My Uncle Bob claims that a firm should produce (in the short run) until its average cost is at its minimum. He reasons that in order to maximize profit, a firm must minimize it costs of production. Is my Uncle Bob correct? Carefully explain your answer. (Stating a mathematical rule is not sufficient.) 3. A single vendor supplies the popsicles to the beachcombers on a beach in a small resort town on the east coast. Assume that this vendor acts as a single price-monopolist and that the marginal cost per popsicle is always $0.60 The price elasticity of demand is -5 in the month of May, while in July the elasticity falls to -1.5 (at all points on the demand curve). a) Use the information given above to offer an intuitive explanation for why you would expect the monopolist to charge higher prices...
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...from the sale of this good does not change, then the price elasticity of demand for the good is (Points : 3) elastic. inelastic. ***** THIS WAS WRONG ***** unitary. None of these Question 3. 3. Which of the following could cause a long-run shift in demand as part of the "guiding function of price"? (Points : 3) a change in tastes and preferences an increase in price caused by a shift in supply income shift caused by an economic recession an increase in number of buyers Question 4. 4. Transaction costs include (Points : 3) costs of negotiating contracts with other firms. cost of enforcing contracts. the existence of asset-specificity. All of these Question 5. 5. An increase in input prices will cause (Points : 3) supply to shift rightward, equilibrium price to rise, and equilibrium quantity to fall. supply to shift leftward, equilibrium price to rise, and equilibrium quantity to fall. supply to shift rightward, equilibrium price to fall, and equilibrium quantity to rise. supply to shift leftward, equilibrium price to fall, and equilibrium quantity to rise. **** THIS WAS WRONG ****** Question 6. 6. Suppose the price of crude oil drops from $150 a barrel to $120 a barrel. The quantity bought remains unchanged at 100 barrels. The coefficient of price elasticity of demand in this example would be (Points : 3) ...
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...Assignment 2: Utility, Elasticity, and Demand Microeconomics 202 I have been placed in charge of a product campaign for a new shampoo, Blue Hawaiian. The objective will be to create and produce a product that competes with the economy brand shampoos currently in the marketplace. The ultimate goal of the campaign will be market penetration and distribution in major retailers including Walmart, Target, Kroger, Costco, and Albertsons/Safeway to name a few. In order to initially gain distribution we will have to utilize a saes team to get appointments with the buyers of the retailers we wish to target and present our new line. To secure new distribution funds will be allocated to ensure warehouse slotting. The initial distribution push will be rolled into the marketing and production costs of Blue Hawaiian shampoo’s launch. Blue Hawaiian will have different SKU’s with Hawaiian influence; Coconut, Pineapple, Mango, and Island Breeze. Pricing will be competitive with popular brands such as Suave, Dove, Pantene, and Neutrogena. (top10for.com). The target retail will be $3.99 at retailers such as Kroger and Albertson/Safeway, $3.19 at Walmart and Target, and $5.79 for a club pack at Costco. The target production cost will be .99 a unit for the singles, and $1.98 for the club pack. Various forms of marketing will be used in the launch of Blue Hawaiian shampoo. Television, print, and social media will be the primary sources of marketing...
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...DEFINITION of 'Elasticity' A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which individuals (consumers/producers) change their demand/amount supplied in response to price or income changes. Economics Basics: Elasticity By Reem Heakal The degree to which a demand or supply curve reacts to a change in price is the curve's elasticity. Elasticity varies among products because some products may be more essential to the consumer. Products that are necessities are more insensitive to price changes because consumers would continue buying these products despite price increases. Conversely, a price increase of a good or service that is considered less of a necessity will deter more consumers because the opportunity cost of buying the product will become too high. A good or service is considered to be highly elastic if a slight change in price leads to a sharp change in the quantity demanded or supplied. Usually these kinds of products are readily available in the market and a person may not necessarily need them in his or her daily life. On the other hand, an inelastic good or service is one in which changes in price witness only modest changes in the quantity demanded or supplied, if any at all. These goods tend to be things that are more of a necessity to the consumer in his or her daily life. To determine the elasticity of the supply or demand curves, we can use this simple equation: Elasticity = (% change...
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...Price elasticity of demand represents the change in the quantity demand and the change in its price. When calculating price elasticity of demand the following formula is used: Price Elasticity of Demand = % Change in Quantity demanded / % Change in Price (Investopedia). It is also important to consider the fact that “a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes) (Investopedia)”. Considering our competitor RedBull we must understand that in order to stand out we must come up with a better price than our competitor, or better yet create a promotional offer “buy one get one free” for a limited period of time and be priced just as our competitor. In terms of technological innovation that it can be an issue, since we know an innovation has been implemented when the first energy drink was introduced to our market. Since we know when bringing to the market a new product most of the capital must go into marketing and promotional items exclusive to the new product, being conservative in the number of employees and ask some of the employees to execute multiple tasks in the company could save money on the capital employed and still complete the job and the amount of labor as scheduled. The 'Law of Diminishing Marginal Productivity' is “an economic principle that states that while increasing one input and keeping other inputs at the same level may initially increase output, further increases...
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...Business Proposal ECO/561: Economics September 23, 2013 Market Equilibration Process Paper Casey’s Nutrition World (CNW) operates as a specialty company of health and wellness products. CNW inventory includes minerals, vitamins, diet products and herbal supplement products as well as sports nutrition products and other wellness products for women 40 years and older. The company sells its products under CNW proprietary brands, including Ultimate Women, Immensely Megawoman, Fit and Lean, Pro Performer, and Pro Performer Activator, as well as under third-party brands. As of September 23, 2012, it had approximately 500 locations, including 760 retail locations in the United States with plans to expand internationally. The company sells its products through company-owned domestic retail stores and corporate partnerships. It also offers its products at CNW.com, SpicyVitamin.com, and drugstore.com. Identify market structure According to "WebMd, Vitamin Essentials As We Age" (2013), “As we age, our dietary requirements change, and we're also more focused on the diseases and disorders that accompany aging -- conditions that getting the right nutrients may help to prevent. So if you're in your 40s, 50s, or 60s, with things like menopause, retirement, and creaky bones looming a little larger in your daily life than they did in your 20s and 30s, and what vitamins we should be taking will most likely change” (para.1). CNW targets Women...
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...happy meal option to the breakfast menu. Current demands by consumers are to add a happy meal option allowing parents to purchase child sized portions of breakfast items. This option could help McDonalds to increase profits by attracting more consumers. Shareholder reports show a quarterly cash dividend per share increase of 15% and annual dividend of $2.80 per share. Comparable sales grew 5.6%. Cash by operations increased $808 million to $7.2 billion. Return to shareholders $6.0 billion (McDonald’s.com, 2012). Elasticity of demand and the market structure for the company’s good or service. * Profit-maximizing quantity is figured by determining the elasticity of the product. * By dividing the change in quantity sold by the corresponding change in price, you get a coefficient that tells you how elastic or inelastic your product is – with coefficients between zero and one being inelastic and coefficients greater than one being elastic. * The elasticity of this particular product is determined by the individual instead of the population. Considering this fact, fast food is considered an elastic good. An elastic good is more of a luxury, and fast-food is not a requirement to survive. * An elastic good, the price must be set at a reasonably low level to increase the revenue. * McDonalds can use the formula of marginal cost = marginal revenue to determine its pricing. Demand is elastic when it is easily affected by the raising or lowering in the price of...
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... ASSIGNMENT No. 1 (Units 1–5) Q.1 How is the Microeconomics different from macroeconomics? Discuss also the subject matter of microeconomics in detail. (20) Q.2 Compare the consumer behavior under Cardinalist and Ordinalist school of thought. (20) Q.3 What is meant by elastic demand and inelastic demand? Write the formulas for point elasticity and arc- elasticity. How can elasticity at a point along a linear demand curve can be determined by inspection? (20) Q.4 Explain long-run laws of return to scale in detail. (20) Q.5 Explain the statement “that the shape of cost curve plays an important role in decision making”. (20) ASSIGNMENT No. 2 (Units 6–9) Total Marks: 100 Pass Marks: 40 Q.1 Explain short run and long run equilibrium of a firm in a perfect competitive market? (20) Q.2 How price discrimination exists and which are the necessary conditions, must be fulfilled for its implementation? (20) Q.3 Determine the equilibrium price and output when a monopolist produces a homogenous product in different plants. (20) Q.4 Analyze the Sweezy and Chamberlin’s solution of stability in oligopoly market. (20) Q.5 Write notes on the followings. a) Collusive oligopoly b) Monopolistic Competition...
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...Create a Hot Dog Proposal ECO 561 Create a Hot Dog Proposal Starting a business is not easy. It is important to know about the economy, supply, and demand. Elasticity of demand and the market structure are vital to the businesses success. Is the business a monopoly, monopolistically competitve, or oligopoly? Angie, the owner of Create a Hot Dog started her business with a vision that became a success. Create a Hot Dog was established in 2004 by owner Angie Smith. Angie had a vision to bring the popular hotdog back to life. She wanted an affordable and enjoyable place where customer could create his or her own foot long hotdog. The owner selected a location in a busy shopping center in Laguna area of Elk Grove. The menu included foot long beef hot dogs and a variety of toppings. There were no names for specific combos the customer would purchase his or her hot dog, chips, and a soda for $5. There is a condiment bar customer can add topping of his or her choice. The toppings include: mustard, ketchup, relish, onions, jalapenos, chili, bacon, cheese, and sour cream. On the first day of business more than 100 customers attended the grand opening. Angie was excited as this was a good way to start the new eatery. Create a Hot Dog made over $500 dollars in profit. The eatery averaged about 30 customers per day, which brought in about $4200 per month in profit. Two years later the eatery was doing well and Angie hired...
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