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
This year, P X = $2, I = $ 4, P Y = $ 2.50, P M = $ 1, and A = $ 2.
Froeb et al.’s Chapter 6:
Individual problems: 6-1, 6-3, and 6-5.
Individual problem 6-1: George has been selling 5,000 T-shirts per
month for $8.50. When he increased the price to $9.50 he sold only
4,000 T-shirts.
a) What is the demand elasticity?
b) If his marginal cost is $4 per shirt, what is his desired markup
and what is his initial actual markup?
c) Was raising the price profitable?
Individual problem 6-3: To conduct an experiment, AMC increases
movies tickets from $9 to $10 and measured the change in ticket
sales. Using the data over the following month, they concluded that
the increase was profitable. However, over the subsequent months,
they changed their monds and discontinued the experiment. How
did the timing affect their conclusion about profitability of
increasing prices?
Individual problem 6-5: An end-of-aisle price promotions changes
the price elasticity of a good from -2 to -3. If the normal price
$10,what should be the promotional price be?