By what percent would the demand change if you increased

Reference no: EM13390313

Your company manufactures a high-efficiency natural gas furnace. The current price is $2000 per unit. The price elasticity of demand is -2.5 for prices between $1500 and $2500. Your CEO has asked you to predict the net effect on demand for various scenarios. You have determined that there are three major factors that will affect your demand: the price of competitors' products, income, and the price of natural gas. You have hired a consulting company to estimate the effects of these factors. The results are as follows: (1) the cross price

elasticity of demand between your product and your competitors' products is constant at +.5, (2) income elasticity of demand for your products is constant at +1.6, and (3) the cross price elasticity of demand between your product and natural gas is constant at +.3.

a) By what percent would your demand change if you increased price by 5% and all other factors remained constant?

b) By what percent would your demand change if you did not increase price but your competitors increased their prices by 8% and all other factors remained constant?

c) By what percent would your demand change if you did not increase price but income decreased by 2% and all other factors remained constant?

d) By what percent would your demand change if you did not increase price but the price of natural gas fell by 20% and all other factors remained constant?

e) What is the net effect on your demand of all changes taken together (you increased price by 5% and competitors increased price by 8% and income decreased by 2% and the price of natural gas fell by 20%)? Assume the effects of each change are independent and cumulative.

Reference no: EM13390313

Questions Cloud

Consider this scenario you have inherited 100000 from a : consider this scenario you have inherited 100000 from a distant relative and you want to invest this windfall in the

Find out your options and potential trade-offs support the : imagine that you are a project manager and your project schedule indicates that the work to be completed by a critical

Compute effect of each of these four changes on demand : suppose the chairman and chief executive officer of general motors has decided to a raise the companys auto prices by

Write down a 1400- to 1600-word paper on how you would : write a 1400- to 1600-word paper on how you would develop and implement a public facility security protection program.

By what percent would the demand change if you increased : your company manufactures a high-efficiency natural gas furnace. the current price is 2000 per unit. the price

Develop a three- to four-page analysis excluding the title : develop a three- to four-page analysis excluding the title and reference pages on the projected return on investment

The leader of a local health care organization ken janowski : the leader of a local health care organization ken janowski has noticed other health care organizations successfully

The explanation of the present practices that american : assume that they are a consultant working for an american firm responsible for providing training to expatriates on

Compute short-and long-run price elasticities of demand for : according to a study of u.s. cigarette sales between 1955 and 1985 when the price of cigarettes was 1 higher

User Account

All Pages