Question

I just need help with parts B and C, I know those answers are correct but have no clue how to do them. Please show step by step! Thank you!:)

A)   Assume the following:

       Number of college students in the market:                       25,000

       Average number of copies per student per year                     125

       Your company’s estimated share of the total market               13%

Total annual market demand                                                            3,125,000

Estimated annual company demand                                                     406,250

Estimated monthly demand                                                                    33,854

Estimated weekly demand                                                                        7,813

Given the following for your copy business:   

Annual Expenses:

     VC  Paper:                       $  4,062.50                  FC  Salaries:                              $ 30,000                          

      FC  Rent:                        $ 12,000                      VC  Hourly labor:                      $ 62,400

      FC  Insurance:                $   2,500                       FC  Maintenance contract         $   2,000

      FC Advertising:             $   1,800                        FC Utilities:                             $    2,400

      VC Other Supplies:        $   5,000

Total Fixed Cost:    $ 50,700                       Total Variable Cost: $71,462.50.             

    Fixed Cost/unit: 50700/406250= $ .12    Variable Cost/unit:  71462.5/406250=$ .175  or $ .18

B.) Assume you lower the price from $.30 to $.24 per copy and you demand increases to10,812  

       copies weekly.  Determine the elasticity of your demand.  What can you infer about your

       market? 1.91, Elastic

C)   Assume you raise the price from $.30 to $.45 per copy and your demand decreases by 1000

         copies weekly.  Determine the elasticity of your demand.  What can you infer about your

         market? .25, Inelastic

Answer 1

A B с D 느 E F G H - K L %age old price new price change in price old new demand demand % change in demand 1 a b e=b-a/a c d f=d-c/c 2 Price Old New elasticity revenue Revenue Explanation % change in qty/% Indicates sales volume and 1.92 sales revenues increase with 2343.9 2594.88 reduction in price per unit The net revenue increases with 0.26 increasing price though the 2343.9) 3065.85 volume of sales wil decrease Answer b 0.3 0.24 -20% 7813 10812 38.4% 3 Answer c 0.3 0.45 50% 7813 6813 -12.8% 4 5 Formulas in excel: А B с D E F G H J old price new price %age change in price old demand new demand % change in demand Price elasticity Old revenue New Revenue 1 a b e=b-a/a с d f=d-c/c % change in qty/% change in price 2 Answer b 3 0.3 0.24 =ROUND((C3-B3/B3,2) 7813 10812 =ROUND((F3-E3)/E3,3) =G3/D3 =B3 E3 =C3*F3 Answer c 0.3 10.45 =(C4-B4)/B4 7813 6813 =(F4-E4)/E4 =G4/D4 4 5 =B4E4 =C4F4