Market Research Assignment | Homework For You
2. Market researchers at Chrysler have estimated the demand for their new ChryslerCrossfire sports cars as follows:QC = 1,050,000 − 95PC + 14.25M + 60PBMW + 25PPwhere QC is the quantity of Chrysler Crossfires sold annually, PC is the price of aChrysler Crossfire, M is average household income, PBMW is the price of BMW’s330i sports sedan, and PP is the price of Porsche’s Boxster S sports car. The marketingteam at Chrysler plans to price the Crossfire at $32,000.
They predict thataverage household income is $75,000 for buyers in the market for their sports sedan.The current prices for BMW’s 330i and Porsche’s Boxster S are $34,000 and$50,000, respectively. Use this information to answer the following questions.
a. Compute the predicted annual sales of the Chrysler Crossfire:QC = ____________ units per year.
b. Compute the income elasticity of demand for the Chrysler Crossfire:EM = __________.The computed value of income elasticity indicates the Crossfire is a(n)_______________ good. Average household income is predicted to fall nextyear by 2.5 percent, which will cause sales to _________ (rise, fall) by_______ percent (assuming other factors remain the same).
c. Compute the price elasticity of demand for the Chrysler Crossfire:E = __________.At the current price of $32,000, Chrysler is choosing to price in the______________ (elastic, inelastic) region of demand. At this point, a 5 percentincrease in the price of Crossfires would be expected to cause sales tofall by ________ percent (assuming other factors remain the same).
d. Compute the cross-price elasticity of demand for Chrysler Crossfires with respectto changes in the price of the BMW 330i:EC-BMW = __________.Compute the cross-price elasticity of demand for Chrysler Crossfires with respectto changes in the price of the Porsche Boxster S:EC-P = __________.Both cross-price elasticities are _______________ (positive, negative,greater than 1, less than 1) because these two cars are viewed by car-buyersas ______________ (substitute, complement, inferior, normal) goods.e. In part d, which of the two cross-price elasticities is larger in absolute value?Why do you suppose one is larger than the other? Get Economics homework help today