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ECO 550 Week 2 Problem Set




Question;Managerial;Economics and Globalization ? ECO 550;Week 2 Problem Set;1. For each of the following cases, what is the;expected impact on total revenue of the firm? Explain your reasoning.;a. Price elasticity of demand is known to be -0.5;and the firm raises prices by 10 percent.;b. Price elasticity of demand is known to be -2.5;and the firm lowers price by 5 percent.;c. Price elasticity of demand is known to be -1.0;and the firm raises price by 1 percent.;2. You have the following information for your;product;The price elasticity of demand is -2.0;The income elasticity of demand is 1.5;The cross price elasticity of demand between;your good and a related good is -3.5;What can you determine about consumer demand for your product from;this information?;3. For each of the following cases, calculate the;arc price elasticity of demand, and state whether demand is elastic, inelastic;or unit elastic.;When the price of milk increases from $2.25 to;$2.50 per gallon, the quantity demanded falls from 100 gallons to 90 gallons.When the price of paperback books falls from;$7.00 to $6.50, the quantity demanded rises from 100 to 150. When the rent on apartments rises from $500 to;$550, the quantity demanded decreases from 1,000 to 950.4. The following table shows the results of a;multiple regression study of the demand for ethical or prescription drugs;using panel data across seven countries [France, West Germany, Italy, Japan;Spain, the United Kingdom, and the United States], from 1980 to 1987. [The;United States variable is omitted from the results because it is the country;used for comparison.] The authors hypothesized that:a. Price would be inversely related to quantity;demanded.;b. Income differences across countries would affect;the demand for these drugs, which are hypothesized to be normal goods.;An increase in the number of doctors across;countries would increase the demand for prescription drugs because doctors are;required to write prescriptions and a larger number of doctors reduce wait;times for prescriptions.A time trend variable is needed to control for;factors, such as country demographics, that change over time. f. The demand differs by country, given varying;political and health care institutions, so that dummy variables that take on;the value of zero or one are included to control for the effects of each;country on drug demand.


Paper#57144 | Written in 18-Jul-2015

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