Eco Homework Help?

Question

XYZ Shoe Stores, Inc. cut prices on women's dress shoes by 2 percent during the first quarter and enjoyed a 4-percent increase in unit slaes over the period as compared to a year earlier.

a. Calculate the point price elasticity of demand for XYZ Shoe Stores.

b. Calculate the company's optimal shoe price if marginal cost is $10 per unit.

Answer 1

a. Price elasticity is percentage change in demand/ percentage change in prices. So, elasticity = (4%) / (-2%)= -2. This is broad indicator because we are not sure if other factors like tastes and prefences, market structure, prices of other goods and income levels changed since the earlier period.

b. Yu have given only the marginal cost. We need to know the demand curve, the market structure and other data also to compute the optimal shoe price. If it is perfectly competitive market, there is no way the firm can choose the price. If it is monopoly, it should set price at which marginal revenue equal $10.

Answer 2

A:

Price elasticity is 4%/-2%=2. Though it's not possible to calculate exact point-price elasticity without additional data. I've used simplified method.

B:

Some additional data is required to answer correctly.