Managerial Economics (Froeb) - Ch 6 Simple
Pricing Exam Questions With Correct
Answers.
Individual demand - answerHow many units an individual will purchase at a given price
Aggregate demand - answeralso called market demand
the total number of units that will be purchased by a group of consum...
Managerial Economics (Froeb) - Ch 6 Simple
Pricing Exam Questions With Correct
Answers.
Individual demand - answer✔How many units an individual will purchase at a given price
Aggregate demand - answer✔also called market demand
the total number of units that will be purchased by a group of consumers at a given price
What kind of decision is pricing? - answer✔Extent decision
When should price be reduced? Increased? - answer✔Reduce price (increase quantity) if MR >
MC
Increase price (reduce quantity) if MR < MC
What is the optimal price? - answer✔Where MR = MC
Price elasticity of demand - answer✔Measure of how responsive quantity demanded is to
changes in price
Price elasticity of demand (e) = (% change in quantity demanded) / (% change in price)
if absolute value of e is >1 then demand is elastic
if absolute value of e is <1 then demand is inelastic
Estimated price elasticity = [(Qt-Q2)/(Q1+Q2)] / i(P1-P2)/(P1+P2)]
this equation is used to estimate demand from a price and quantity change
What happens to revenue when prices increase in a product with elastic demand? -
answer✔Revenue decreases
What happens to revenue when prices increase in a product with inelastic demand? -
answer✔Revenue increases
The more elastic a product is the _____ the optimal price - answer✔lower
The five factors that affect elasticity:
(answer "more" or "less")
1. Products with close substitutes have ____ elastic demand
2. Products with any complements have _____ elastic demand
3. Demand for brands is _____ elastic than industry demand
4. In the long run, demand becomes _____ elastic
5. As price increases, demand becomes _____ elastic - answer✔1. more
2. less
3. more
4. more
5. more
What are three other measures of elasticity that affect demand? - answer✔income elasticity
cross-price elasticity
advertising elasticity
Stay-even analysis - answer✔can be used to determine the quantity change required to offset a
price change
%change quantity = %change price / (%change price + margin)
When is a proposed price increase profitable? (regarding stay-even quantity) - answer✔If the
predicted quantity loss is less than the stay-even quantity
How to use elasticity to forecast changes in demand - answer✔%change Quantity = %change
Price / (%change Price + margin)
Jim has estimated elasticity of demand for gasoline to be -0.7 in the short run and -1.8 in the long
run. A decrease in taxes on gasoline would
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