The demand for Joy’s new high-alcohol content beer has enjoyed rapid growth recently. From the analysis of Joy’s various outlets, it was found that the demand curve follows this pattern: Q J = 150 – 200 P J – 100 P C + 10 T – 150 A C + 250 A J where
Q J = the number of beers served per week
P J = the price of Joy’s new high-alcohol content beer
P C = Average price of the competition
T = Average outdoor temperature (measured in ya-ba-da-ba-doo degrees)
A C = Monthly Advertising expenditures (in units) by the competition
A J = Monthly Advertising expenditures (in units) by Joy’s outlets Currently
P J = 7.00, P C = 6.00, T = 35, A C = 10, and A J = 20.
a) Should P J be increased or decreased to maximize revenue? How do you know?
(b) Calculate the elasticity of demand for Joy’s beer with respect to P C , T, and A C .
(c) Calculate the price range over which the demand for Joy’s beer is price elastic.
(d) If the cost per beer is 5 and Joy’s behaves as a monopolist, how many beers will be sold and at what price?
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