MM FEB-UGM

MAN 5007 (PRA-MBA)

Managerial Economics
Hengki Purwoto

KUNCI JAWABAN CLASS EXERCISE Bab 3

1. (Bab 3 no. 2)

a. At the given prices, quantity demanded is 750 units: 𝑄𝑄𝑥𝑥𝑑𝑑 = 1,200 − 3(140) −
0.1(300) = 750. Substituting the relevant information into the elasticity formula
𝑃𝑃 140
gives: 𝐸𝐸𝑄𝑄𝑥𝑥 ,𝑃𝑃𝑥𝑥 = −3 𝑄𝑄𝑥𝑥 = −3 750 = −0.56. Since this is less than one in absolute
𝑥𝑥
value, demand is inelastic at this price. If the firm charged a lower price, total revenue
would decrease.

b. At the given prices, quantity demanded is 450 units: 𝑄𝑄𝑥𝑥𝑑𝑑 = 1,200 − 3(240) −
0.1(300) = 450. Substituting the relevant information into the elasticity formula
𝑃𝑃 240
gives: 𝐸𝐸𝑄𝑄𝑥𝑥 ,𝑃𝑃𝑥𝑥 = −3 𝑥𝑥 = −3 750 = −1.6. Since this is greater than one in absolute
𝑄𝑄
𝑥𝑥
value, demand is elastic at this price. If the firm increased its price, total revenue
would decrease.

c. At the given prices, quantity demanded is 750 units, as shown in part a. Substituting
𝑃𝑃
the relevant information into the elasticity formula gives: 𝐸𝐸𝑄𝑄𝑥𝑥 ,𝑃𝑃𝑧𝑧 = −0.1 𝑄𝑄𝑧𝑧 =
𝑥𝑥
300
−0.1 750 = −0.04. Since this number is negative, goods X and Z are complements.

2. (Bab 3 no. 4)

%Δ𝑄𝑄 𝑑𝑑
a. Use the own price elasticity of demand formula to write −5 𝑥𝑥 = −3. Solving, we see
that the demanded for good X will increase by 15 percent if the price of good X
decreases by 5 percent.

%Δ𝑄𝑄 𝑑𝑑
b. Use the cross-price elasticity of demand formula to write 8 𝑥𝑥 = −4. Solving, we
see that the demand for good X will decrease by 32 percent if the price of good Y
increases by 8 percent.

%Δ𝑄𝑄 𝑑𝑑
c. Use the formula for the advertising elasticity of demand to write −4 𝑥𝑥 = 2. Solving,
we see that the demand for good X will decrease by 8 percent if advertising decreases
by 4 percent.

%Δ𝑄𝑄𝑑𝑑
d. Use the income elasticity of demand formula to write 4 𝑥𝑥 = 1. Solving, we see that
the demand for good X will increase by 4 percent if income increases by 4 percent.