BUSI 620 help Making Decisions/uophelp.com BUSI 620 help Making Decisions/uophelp.com | Page 9

Problem 7: The total operating revenues of a public transportation
authority are $100 million while its total operating costs are $120
million. The price of a ride is $1, and the price elasticity of demand for
public transportation has been estimated to be -0.4. By law, the public
transportation authority must take steps to eliminate its pricing deficit.
a) What pricing policy should the transportation authorty adopt? Why?
(b)
b) What price per ride must the public transportation authority charge to
eliminate the deficit if it cannot reduce costs?
Problem 9: A researcher estimated that the price elasticity of demand for
automobiles in the United States is -1.2, while the income elasticity of
demand is 3.0. Next year, U.S. auto makers intent to increase the
average price of automobiles by 5 percent, and they expect consumers’
disposable income to rise by 3 percent.
a) If sales of domestically produced automobiles do expect U.S auto
makers to sell next year?
b) By how much should domestic auto makers increase sales by 5
percent next year?
Problem 14: Suppose that a firm maximizes its total profits and has a
marginal cost of production of $8 and price elasticity of (-) 3. Find the
price at which the firm sells the product.
Problem15.
The research department of the Corn Flakes Corporation CFC estimated
the following regression for the demand of the cornflakes it sells:
QX = 1.0 - 2.0P X + 1.5I + 0.8P Y - 3.0P M + 1.0A
Where QX = sales of CFC cornflakes, in millions of 10- ounce boxes per
year
P X = the price of CFC cornflakes, in dollars per 10- ounce box
I = personal disposable income, in trillions of dollars per year
P Y = price of competitive brand of cornflakes, in dollars per 10- ounce
box
P M = price of milk, in dollars per quart
A = advertising expenditures of CFC cornflakes, in hundreds of
thousands of dollars per year