The Market Demand Curve - The Cross-Price Elasticity of Demand - Marketing Assignment Help

Assignment Task:

PART ONE

For each of the following two statements, please indicate whether it is true, false, or uncertain, and explain why.  If the statement has two parts, or if it is partly true and partly false, please explain both parts.  The evaluation of your answer focuses on the quality of your explanation.

A.  Given the following information:  A market for a product exists.  The absolute value of the price elasticity of market demand for the product is 1.7, and the income elasticity of market demand for the product is −0.5.  During the initial time period the market price for the product is $84 per unit, and the number of units purchased is 126 thousand units. During the next time period the market price for the product is $74 per unit, and the number of units purchased is 144 thousand units.

Statement to evaluate:  Between the initial time period and the next time period, the market demand curve shifted to the right.

B. Given the following information:  Your operations group has calculated annual production costs for plants of different sizes.  

• A facility designed to produce 120,000 units of your product per year will operate with a total annual production cost of $54 million.

• A facility designed to produce 150,000 units per year will operate with a total annual production cost of $60 million.

• A facility designed to produce 200,000 units per year will operate with a total annual production cost of $84 million.

Statement to evaluate:  The minimum efficient scale (MES) of a facility for producing your product is probably smaller than 150,000 units per year.

PART TWO

The cross-price elasticity of demand for Toyota’s mid-size SUV with respect to the price of Chevrolet’s mid-size SUV is 0.4.

What would you guess to be a reasonable number value for the cross-price elasticity of demand for Toyota’s mid-size SUV with respect to the price of Chevrolet’s standard-size pickup truck?  Explain your reasoning for why you guess this number value.

PART THREE

A monopoly exists and maximizes its profit using one price to all buyers.  

The demand curve for its product is a straight line, and its average cost is constant.  The monopoly’s initial demand curve is shown in the graph (on the next sheets) as D0, and the monopoly’s initial average cost curve is shown in the graph as the line AC0.

You are given an assignment.  For each of the two changes in conditions shown on the next two sheets, you are asked to determine if it is possible or not possible that the change in conditions could lead to the following specified outcome:  

As a result of a change in conditions:  

• The profit-maximizing monopoly changes to a new quantity that is larger than the initial quantity,

     AND

• There is no change in the monopoly’s economic profit (π). 

Your answer should be based on the economics of each situation.

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