MANAGERIAL ECONOMICS Problems based on elasticity Date of submission : 31.10.2012 1.

The table shows the sales data of a firm which imports and distributes sports and formal shoes Month July August September October November December January February March April May June No of sport shoes sold 4500 5500 4500 3500 5000 15000 5000 4000 5500 6000 4000 5000 Sport shoes Advertising expenditure 10000 10000 9200 9200 9750 9750 8350 7850 9500 8500 8500 8500 Sport shoes Formal price P shoe Price PD 26 50 24 50 24 50 24 46 25 50 20 50 25 50 25 50 25 55 24 51 26 51 26 57

a) Compute the average advertising arc elasticity of demand for sport shoes. b )Compute the average price arc elasticity of demand for sport shoes . c )Calculate the average cross arc elasticity of demand between sports and formal shoe. 2. The demand schedule of a product is given in the following table. Price 6 Quantity 0 5 10 4 20 3 30 2 40 1 50 0 60

of x a) Calculate the price elasticity of demand when the price changes from Rs 5 to Rs 3. b) Calculate the price elasticity of demand considering the average price of Rs 5 and Rs 3. c) Calculate the price elasticity of demand when the quantity demanded increases from 30 to 50 units. d) Calculate the price elasticity of demand when quantity demanded decreased from 50 units to 30units. e) calculate the price elasticity of demand when the price rises from Rs 3 to Rs 5.

3. a) When the price of a product is Rs 10 per unit , the quantity demanded is 40m units .Bit when the price of the product rises by Rs 10 per unit to Rs 20 per unit, the quantity demanded falls to 20 units . What is the price elasticity of demand? b) What is the slope of demand curve when the price is 60 and the demand function is p = 100-36q c) For the demand function QD= 145 0.5p, what is the quantity demanded when the price is Rs 80. d) What will be the value of MR when p =Rs 80 and demand function is QD = 145 p? 4. The following is the demand schedule of three goods X,Y,Z .

Price X 3.50 4.00 4.50 4.50 4.75 5.00 Calculate :

Y 2.50 3 3.50 4 4.50 4.50

Z 3.25 3.75 4 3.25 4.75 5.25

Quantity Demanded X Y 400 550 450 600 425 700 450 650 500 500 350 550

Z 150 200 250 300 150 100

a) The cross elasticity of demand between X and Y b) The cross elasticity of demand between Y and Z. 5 Calculate income elasticity of demand from the following demand schedule.

Price (Rs ) 4 5 4 6.From the following table calculate price elasticity of demand

Quantity Sold (Units) 150 140 125 pric Quanti inco e ty sold me 20 1000 3000 0 18 1200 2400 0 16 1450 2600 0 12 1600 3000 0 20 12 1200 1600 3200 0 3100 0

Consumer Income (Rs) 5000 6000 4500

7 .The TIME WATCH COMPANY assembles wrist watches and sells in western India . Demand function faced by the company is estimated to be QT = 40000 -2PT -2I+4Pc QT=number of watches demanded from time watch company PT=price of watches sold by time watch company I=Per capita income in western India Pc=Price changed by competitors Currently PT, I, Pc are Rs 350, Rs 10000 and Rs 400 respectively Calculate A The price elasticity of demand B The income elasticity of demand 8. Home Needs LTD, Produces three products Lam, Tom ,Pom. The demand function are estimated as follows A Ql=100-4Pl Qt=1500-20Pt Pp=50-0.1Qp Ql, Qt, Qp are quantities demanded of the products Lam ,Tom, Pom. Pl, Pt, Pp are price per unit of the products Lam, Tom , Pom.

Currently Home Needs LTD , Sells the products at prices Pl=20,Pt=5,andPp=20. Calculate the price elasticities of demand for Lam, Tom and Pom B (1) The demand function for a commodity is estimated to be Qd=250000-35P.Estimate the price elasticity of demand between prices Rs 2000 and Rs 3000 per unit (2)Calculate the price elasticity of demand at price Rs 2000 if Qd=250000-3P (3)If The demand function for a commodity is estimated to be Qd=250000-35P.Estimate the theoretical highest price that can prevail in the market and the theoretical maximum quantity that the customers are willing to purchase. 9 .In a year number of cars sold decreased by 20% during the year, prices of cars increased by 5%, per capita income declined by 2% and the price of petrol increased by 10% income elasticity of demand for cars is estimated to be +1.5 and cross price elasticity is estimated to be -0.30. Estimate: a) The impact of decline in per capita income on the demand for cars. b) The impact of increase in price of petrol on the demand for cars. c) If sales decline because of increase in petrol and decrease in income are 3% and 3% respectively , estimate the price electricity of demand for cars . 10
A

Point

Price of X

Quantity Demanded

A B

8.5 10.0

2000 1500

1) Compute the price elasticity of commodity X(From A to B)

2) Compute the price elasticity of commodity X(From B to A) 3) Compute the price elasticity of commodity X , given the schedule. B The market of goods consists of 3 individuals Arun ,Raj and Dev. The demand schedule of the individuals are given below.

Price of Goods (Rs) 100 90 80 70

Quantity Demanded Arun 0 3 5 6 Raj 0 1 2 4 Dev 0 0 1 2

What is the arc price elasticity of demand for good when price decreases from Rs 90 to Rs 80 per unit.