6. (10 pts.; 2 pts each)You
are the manager for Dunkin Donuts and know the following elasticities:
?= 1.5?I = 1.2? xy1 = 0.5? xy2 = -0.5
? is the price elasticity of
demand for Dunkin Donuts (DD) glazed doughnuts, ?xy1is the cross elasticity of demand
between DD glazed doughnuts and Krispy Kreme (KK) glazed doughnuts, ?xy2is thecrosselasticity of demand between DD glazed doughnuts
andDD French
Vanilla coffee, and ?I is the income elasticity of DD glazed doughnuts.
a)
If
you want to increase your sales of glazed doughnuts by 30%, in what direction
and by how much do you need to change the price?
b)
If
you make the percentage price change that you calculated in parta) will total revenue increase or
decrease?How do you know?
c)
Krispy
Kreme lowers its price of glazed doughnuts by 20%.The demand for Dunkin Donuts glazed doughnuts
will change by what percentage and in what direction?
d)
Dunkin
Donuts raises the price of its French Vanilla coffee by 15%. The demand for
Dunkin Donuts glazed doughnuts will change by what percentage and in what
direction?
e)
If average
income increases by 5% by what percentage and in what direction will the demand
for Dunkin Donuts glazed doughnuts change? Are DD glazed doughnuts a normal
good or an inferior good and how do you know?