Question 2

[Paola]

Hi there I have gotten different responses for Q2, i would like to
compare and get to the correct answer

Also here is teh response for part c)


a. I agree n=0.913

b. Do not agree, when the demand curve shift in, the only value that
change in the elasticity calculation is the Q ave, all other values
remain the same as in calculation for question a), since Qave is the
denominator and Qave gets smaller when curve shifts in, the total
value for elasticity increase, so the calculation for elasticity in
point a) is an underestimated.
Qave when the curve shift in 1M is equal to (19.1+20.4)/2 = 19.75, all
other values are the same as in a) so the new elasticity is = -0,959
bigger value so a) was an underestimate

c. N= % change in Q / % change in P
%Change in P = 10% n= -0.959 then %Change in Q = 9.59% The
impact of a price cut of 10% in the Output is 9.59%
MR= P (1+1/n)  P= Po(0.9)  MR= 0.183(0.9) (1+ (1/-0.959)
MR= -0.007

[Heba Ahmed]

Hi,
your answer for b (i) makes more sense than my answer so i do agree
with you. However in part (ii) the question is asking us to re-
calculate elasticity to eliminate the effect of the demand shift. how
is your answer eliminating the effect of the demand shift? by
subtracting 1.0 from all the Q values aren't you keeping the demand
shift?

[Cat Moisanu]

Paola,

I agree with your logic but I think you got your numbers mixed up in b ii)

This is what I have:

Q0 = 20.1

Q1 = 21.4+1=22.4

Qavg = 21.25

n=-1.578

[Samer Fahmy]

This is what I got as well.

a) n=0.914

b) (i) underestimate

     (ii) change Q1 to 22.4, price is the same, thus only %dQ changes, n=-1.578

c) MR = 0.1647(1 - 1/1.578) = 0.0637

-Samer

[Paola]

Hebba i agree with you about ii), i will check that one

Cat and sammer
Why are you adding 1M when it shift in should not be moving to the
left, so will be substracting? I am a little confuse there.

> > MR= -0.007- Hide quoted text -
>
> - Show quoted text -

[sam...@gmail.com]

Because the 21.4 is the already shifted in demand. So you need to shift the demand back out to be back on the same demand curve as 1983. So that's why you add the 1.