question 1
Just a year after you launched the expansion of DWJ, inflation has raised your marginal cost by 7% from $198.33 to $212.21. Your elasticity varies for each of the three regions in which you sell your DWJ brand. In the southwestern region, your elasticity is -2.76. In your upper-western region, the elasticity is -3.50. In your New England region, the elasticity is -5.76.Use %ΔQd/%ΔP = e to estimate the percentage decrease in quantity demanded if you were to raise prices in all three regions by 7%. (Do not include the negative sign when recording your answer. Round to one decimal place, i.e. 10.075, is 10.1)
a. %ΔQd Southwestern b. %ΔQd Upper-western c. %ΔQd New England
question 2
Your current prices are $311 in the southwestern region; $278 in the western-region and $240 in the New England region. Your marginal cost is now $212.21. Given the predicted changes in the quantity demanded by region per problem 1 and using the stay even analysis %ΔQd = %ΔP/[%ΔP + ((P-MC)/P)], can you raise the price by 7% in any of the regional markets? State you conclusion and then show all the steps supporting your conclusion. (You must show your steps. Note you are not being asked to compute the new price. Carry all decimals when doing your calculation, but round at the end to one decimal, i.e. 10.075 is 10.1)
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