Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 3, Problem 11PAA
To determine
The relation between price
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You are a manager in charge of monitoring cash flow at a major publisher.
Paper books comprise 70 percent of your revenues, which grow about
4 percent annually. You recently received a preliminary report that suggests
the growth rate in ebook reading has leveled off, and that the cross-price
elasticity of demand between paper books and ebooks is -0.5. In 2019, your
company earned about $300 million from sales of ebooks and about
$700 million from sales of paper books.
If your data analytics team estimates the own price elasticity of demand for
paper books is -2.5, how will a 4 percent decrease in the price of paper books
affect your overall revenues from both paper books and ebooks sales?
Instructions: Enter your response rounded to one decimal place.
Your overall revenues will change by $
million.
You are a manager in charge of monitoring cash flow at a major publisher. Paper books comprise 40 percent of your revenues, which grow about 2 percent annually. You recently received a preliminary report that suggests the growth rate in ebook readings has leveled off, and that the cross-price elasticity of demand between paper books and ebooks is -0.3. In 2016, your company earned about $600 million from sales of ebooks and about $400 million from sales of paper books.
If the own price elasticity of demand for paper books is -2, how will a 4 percent decrease in the price of paper books affect your overall revenues from both paper books and ebooks sales?
(Enter your response rounded to one decimal place.)
Your overall reveues will change by $____ million.
Revenue at a major smartphone manufacturer was $1.4 billion for the nine months ending March 2, up 97 percent over revenues for the same period last year. Management attributes the increase in revenues to a 137 percent increase in shipments, despite a 17 percent drop in the average blended selling price of its line of phones.Given this information, is it surprising that the company’s revenue increased when it decreased the average selling price of its phones?
a. Yes. Own price elasticity is −0.12, which means demand is inelastic and a decrease in price will decrease revenues.
b. Yes. Own price elasticity is −8.06, which means demand is elastic and a decrease in price will decrease revenues.
c. No. Own price elasticity is −8.06, which means demand is elastic and a decrease in price will raise revenues.
d. No. Own price elasticity is −0.12, which means demand is elastic and a decrease in price will raise revenues.
Chapter 3 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
Ch. 3 - Prob. 1CACQCh. 3 - The demand curve for a product is given by...Ch. 3 - Prob. 3CACQCh. 3 - Suppose the own price elasticity of demand for...Ch. 3 - Suppose the cross-price elasticity of demand...Ch. 3 - You are the manager of a firm that receives...Ch. 3 - A Quant jock from your firm used a linear demand...Ch. 3 - Prob. 8CACQCh. 3 - Prob. 9CACQCh. 3 - Prob. 10CACQ
Ch. 3 - Prob. 11PAACh. 3 - Prob. 12PAACh. 3 - For the first time in two years, Big G (the cereal...Ch. 3 - Prob. 14PAACh. 3 - You are a division manager at Toyota. If your...Ch. 3 - You are a manager in charge of monitoring cash...Ch. 3 - As newly appointed Energy Czar. your goal is to...Ch. 3 - As the owner of Barneys Broilers—a fast-food...Ch. 3 - Prob. 19PAACh. 3 - With milk sales sagging of late. The Milk...Ch. 3 - Prob. 21PAACh. 3 - Prob. 22PAACh. 3 - Prob. 23PAA
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