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Veena Pailwar IMT Nagpur - Name: Rabi Kant Bhatt Roll No. 202022038 Batch: 2020-2022 Date: 13.09.2020

The document discusses a demand function estimated by Mochi Ltd for its footwear products. It provides the current prices, income, and advertising expenditure values. It asks to calculate the price elasticity of demand for Mochi Ltd's products, cross price elasticity, income elasticity, and draw managerial implications. A second part discusses Amazon's increased revenue and profit in Q1 2004. It identifies reasons given by the CFO and estimates Amazon's price elasticity of demand for books as -0.45. It asks if the CFO correctly identified reasons for increased revenue and what pricing strategy Amazon should pursue.

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Ravi Bhatt
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684 views2 pages

Veena Pailwar IMT Nagpur - Name: Rabi Kant Bhatt Roll No. 202022038 Batch: 2020-2022 Date: 13.09.2020

The document discusses a demand function estimated by Mochi Ltd for its footwear products. It provides the current prices, income, and advertising expenditure values. It asks to calculate the price elasticity of demand for Mochi Ltd's products, cross price elasticity, income elasticity, and draw managerial implications. A second part discusses Amazon's increased revenue and profit in Q1 2004. It identifies reasons given by the CFO and estimates Amazon's price elasticity of demand for books as -0.45. It asks if the CFO correctly identified reasons for increased revenue and what pricing strategy Amazon should pursue.

Uploaded by

Ravi Bhatt
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Consumers, Firms and Markets

Veena Pailwar
IMT Nagpur
Demand and Supply Elasticities: Exercise 1
______________________________________________________________________________
Name: Rabi Kant Bhatt Roll No. 202022038

Batch: 2020-2022 Date: 13.09.2020


Economics analysis wing at Mochi Ltd estimated that the demand function for foot wears
supplied by the company is: Qd = 2000 – 0.2 Pf + 0.5 Py + 0.04 I + 0.02 A
Where: Qd = Quantity demanded of foot wears; Pf = Price of footwears supplied by Mochi
Ltd; Py = Price of footwears supplied by Footprints Ltd, a competitor of Mochi Ltd.
Y = Consumers’ Income; A = Advertisment expenditure of Mochi Ltd.
At present Pf = Rs 200, Py= Rs 240, I= Rs 20,000, A= Rs 6000.
Estimate the following:
a. Price elasticity of demand for Mochi Ltd’s products
b. Cross Price elasticity of demand for Mochi Ltd’s products
c. Income elasticity of demand for Mochi Ltd’s products
d. Draw managerial implications from these elastcities for Mochi Ltd.

1
Consumers, Firms and Markets
Veena Pailwar
IMT Nagpur
Demand and Supply Elastcities: Exercise 2
______________________________________________________________________________
Name: Rabi Kant Bhatt Roll No. 202022038

Batch: 2020-2022 Date: 13.09.2020

Both the revenue and profit of Amazon.com increased during the first quarter of 2004 compared with
the same period during 2003. Tom Szkutak , Amazon’s chief financial officer (CFO), identified following
three reasons for the increase in the profit:
1. Lower price
2. More types of products offered for sale
3. Free shipping on some orders
Economists Judith Chevalier and Austan Goolsbee have estimated Amazon’s price elasticity of demand
for books as -0.45.
On the basis of above information, answer the following questions.
a. Has the CFO correctly identified the reasons for the increase in revenue of Amazon.com?
Why?
b. What pricing strategy the Amozon.com should have pursued to enhance the revenue and
why?

A. No, as the price elasticity of demand is negative it shows that there is inelastic
demand. In such a market change in price does not play a significant role in changes
in revenue and furthermore there are close substitutes available in the market.

The free shipping plays a major role in this as it gives an incentive to the customer to
buy the product.

B. Since the price elasticity of demand is negative, it shows that there is inelastic
demand. Hence amazon should increase the price to thereby increase there revenue.

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