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ECON 512 Workshop 1.3 DROPBOX Elasticity Exercise

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ECON 512 Workshop 1.3 DROPBOX Elasticity Exercise

Workshop One - 1.3 Dropbox

 

Elasticity Exercise

Introduction and Alignment

 

 

This exercise will explore the various components of elasticity and how prices are set taking specific calculations into account.  The differences in elasticity can be explained from computational, written, and graphical perspectives.

Upon completion of this assignment, you should be able to:

• Evaluate price elasticity and the impact of potential pricing decisions relative to revenue maximization.

Resources

• Textbook: Managerial Economics

Background Information

There are significant differences in elasticity and how it affects the purchasing decisions of consumers. With this understanding, it is important to be able to calculate the income elasticity of demand, determine the overall revenue for an organization, and explain why certain prices are feasible from the perspective of the consumer and producer.

Instructions

1. Review Chapter 4, “Demand Elasticity,” in your textbook, Managerial Economics.

2. Considering the concepts of demand elasticity presented in your readings, evaluate the following: 

Manning, Inc. is the leading manufacturer of garage doors.  Demand for residential garage door sales depends, of course, on the rate of new home building activity, which, in turn, depends on changes in income per capita.  During the past year, Manning sold 10,000 garage doors at an average price of $1,500 per door.

In the upcoming year, disposable income per capita is expected to increase from $32,000 to $34,000.  Without any price change, Manning expects upcoming year sales to rise to 12,000 units.

4. Given this information:

a. Calculation: Calculate the arc income elasticity of demand.

b. Arc Price: The company economist estimates that if the price of doors is increased by $100 per door, they could sell 11,500 doors. What is the arc price elasticity, and what would be the company's revenue?

c. Prices: Should Manning raise the price even more? If so, to what amount? If not, why not?

5. Please show your work.

6. When you have completed your assignment, save a copy for yourself and submit a copy to your instructor using the Dropbox by the end of the workshop.

 

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