Managerial economics Calculation and concept questions
Business Finance
Please answer the following 3 questions.
Calculations :-
1_ The Potomac Range Corporation manufactures a line of microwave ovens selling for $500 each. Its sales have averaged about 6,000 units per month during the past year. In February, Potomac’s closest competitor, Spring City Stove Works, cut its price for a closely competitive model from $600 to $450. Potomac noticed its sales volume declined to 4,500 units per month after Spring City announced its price cut. If the elasticity of demand for Potomac’s ovens is -3.0, what price would Potomac have to charge to sell the same number of units it did before the Spring City price cut?
2_ Robert Bentley owns and operates the Bentley Clothing Store. He owns the store in which his business is located, and has completely paid off the mortgage. In 2018, Bentley Clothing Store reported a net profit after taxes of $190,000 on its income statement. Suppose that another store owner has approached Mr. Bentley and offered to pay $80,000 per year to rent the storefront in which Bentley Clothing Store is located. Furthermore, Mr. Bentley has been offered $130,000 to take a position managing the men’s clothing section of the largest department store in town. How would you advise Mr. Bentley if you were thinking only about the financial consequences of his decision? Explain.
Concept:-
3_The University of Alabama is planning to remove more than 10,000 seats from its football stadium. (Capacity will go from 102,000 to 90,000.) The university’s argument is that having fewer fans in the stadium will make the game experience better for those fans that do attend. Use supply/demand analysis to evaluate Alabama’s proposal. What would you expect to happen to ticket prices and total revenue earned by the university? In answering this question, what are your assumptions about elasticity of demand for Alabama football tickets.
