1 The Sylvan Corporation has estimated the price elasticity of demand for synthetic wood sorrel to be

-0.25.
a. If the price of Sylvan wood sorrel increases by 10%, what will happen to the quantity demanded of wood
hewers?
b. What will happen to Sylvans revenues as a result of the price increase?
2 Suppose that the cross-price elasticity of demand for good X is 2.5. The price of good Y increases by
25%.
a. What is the relationship between good X and good Y?
b. How will the increase in the price of good Y affect sales of good X?
3 Suppose that the cross-price elasticity of demand for good M is -1.75 and the price of good N falls by
10%.
a. What is the relationship between good M and good N?
b. How will the fall in the price of good N affect sales of good M?
4 Suppose that the income elasticity of demand for a good is 3.5.
a. What type of good is this?
b. What increase in income will be necessary for the demand for the good to increase by 21%?
5 Silk wood Enterprises specializes in gardening supplies. The demand for its new brand of fertilizer,
Meadow Muffins, is given by the equation Q= 120 - 4P.
a. Silk wood is currently charging $10 for a pound of Meadow Muffins. At this price, what is the price
elasticity of demand for Meadow Muffins?
b. At a price of $10, what is Silk woods marginal revenue?
c. What price should Silk wood charge if it wishes to maximize its total revenue?
d. At the total revenue maximizing price, what is the price elasticity of demand for Meadow Muffins?
e. Diagram your answers to parts a through d.
6 Just-the-Fax, Max, Inc. has determined that the demand for its fax machines is Q = 3,000 - 1.5P.
a. Calculate the point-price elasticity of demand when P = $600.
b. At P = $600, what is the firms marginal revenue?
c. Find the total revenue maximizing price and quantity for the firm.
7 The market research department of Paradox Enterprises has determined that the demand for fingolds is
Q = 1,000 - 5P + 0.05I - 50Pz, where P is the price of glides, I is income, and Pz is the price of ballzacks.
Suppose that P = $5, I = $20,000, and Pz = $15.
a. Compute the price elasticity of demand for fingolds.
b. Is the firm maximizing its total revenue at P = $5. If not, what price should it charge?
c. At P = $5, compute the income elasticity of demand for fingolds.
d. At P = $5, compute the cross-price elasticity of demand for fingolds.

8 The demand equation for a firms product has been estimated as log Qx = 1,500 - 2logPx + 0.5 log I +
0.25 logPy - 1.5 logPz, where Qx represents unit sales of brand X, Px is the price of brand X, I is per-capita
income, Py is the price of brand Y, and Pz is the price of brand Z.
a. What is the price elasticity of demand for brand X?
b. What is the income elasticity of demand for brand X? What type of good is brand X?
c. What is the cross-price elasticity of demand for brand X in relation to the price of brand Y? What is the
relationship between brand X and brand Y?
d. What is the cross-price elasticity of demand for brand X in relation to the price of brand Z? What is the
relationship between brand X and brand Z?
e. What effect will an increase in the price of brand X have on the firms total revenues?
9 The demand curve for widgets is QD = 10,000 - 25P.
a. How many widgets could be sold for $100?
b. At what price would widget sales fall to zero?
c. What is the total revenue (TR) equation for widgets in terms of output, Q? What is the marginal revenue
equation in terms of Q?
d. What is the point-price elasticity of demand when P = $200? What is total revenue at this price? What is
marginal revenue at this price? Explain your result.
e. Suppose that the price of widgets fell to P = $150. What would be the new point-price elasticity of
demand? What is total revenue at this price? What is marginal revenue at this price? Explain your result.
f. Suppose that the price of widgets rose to P = $250.What would be the new point-price elasticity of
demand? What is total revenue at this price? What is marginal revenue at this price? Explain your result.
g. Suppose that the supply of widgets is given by the equation QS = -5,000 + 50P.What is the relationship
between quantity supplied and quantity demanded at a price of $300?
h. In this market, what is the equilibrium price and what is the quantity?
10 The demand for high-top bell-knots is given by the equation Q = 50 - 2P.
a. What is the point-price elasticity of demand at P = $20?
b. If the price were to fall to $15, what would happen to total expenditures on this product and what would
this imply about the price elasticity of demand?
c. Verify your answer to part b by computing the arc-price elasticity over this interval.
d. What, if anything, can you say about the relationship between the point-price elasticities of demand
calculated in parts a and b and the arc-price elasticity of demand calculated in part c?
11 The demand equation for product X is given by Qx = (2IPy)/(5Px), where I is income, Px the price of
product X, and Py the price of product Y. Also, I = $1,000, Px = $20, and Py = $5.
a. Write the demand equation in linear form.

b. Write an equation for the point-price elasticity. For what values of I, Px, and Py is demand unitary elastic?
Explain.
c. Write an equation for the point-income elasticity. For what values of I, Px, and Py is demand unitary
elastic? Explain.
d. Write an equation for the pointcross-price elasticity. For what values of I, Px, and Py is demand unitary
elastic? Explain.