Question

3. The Tacqueria Pablano (TP) restaurant chain just completed a study of weekly demand for its traditional tacos across its 50 regional markets. The study revealed QD-400-1200P + 0.8A + 55Pop + 800P, Where, Qo is the no. of TP tacos sold/week at Price P, A is the local advertising expenditure, Pop is the local population (in thousands), and Pc is the average taco price of TP's local competitors. You are the manager of the local Fairfax TP restaurant and in your market, P $1.50, Pc $1.00, Pop 40, and A $1,000 a. Estimate the weekly sales at your restaurant b. What is the current price elasticity for tacos? What is the advertising elasticity? c. Should TP raise its taco prices? Why or why not? 4. Electronica produces digital fitness monitors (FMs, a FitBit knock off) on a single production line using one day shift. The total output of FMs depends directly on the number of labor-hours employed on the production line. Maximum capacity of the line is 120,000 FMs/month, and requires 60,000 labor-hours per month at full capacity. Total fixed costs are $600,000/month, the average wage rate is $8/hour, and other variable costs (e.g., materials, electricity, etc.) average $6/FM. The marketing department estimates demand as: P 28 Q/20,000, where Po is the price of FMs and Q is output of FMs per month How many additional FMs can be produced by an extra hour of labor? What is the marginal cost of a fitness monitor? As a profit maximizer, what price and output level should Electronica choose? Will this fully utilize production capacity? What contribution do FMs provide to Electronica? The firm can double production if it schedules a night shift. Night shift wages, however, are higher at $12/hour. Re-answer part (a) in light of this additional information Suppose a competitor introduces a new and better fitness monitor such that Electronica's FM sees its demand fall (permanently) to Po 20-Q/20,000. Explain what should the firm do in the short-run and then in the long-run? a. b. C.

Answer 1

P - ^/.so, Pe -fl. oo, Pop yo, A '00(o 4b 4 units x 0.8