need help

Your calculation is incorrect. You already know e, you are looking for the %ΔQd.

there were two challenges to determining how profits might be effected by cost push inflation. One first had to complete the calculation of the percentage change in the quantity demanded given a 10% increase in cost passed on as a 10% increase in prices. The second step was to consider how the supply curve might also influence the potential profits. You did not complete both aspects correctly.

now remember the process if one of continuing improvement. So just to solidify how one can use the price elasticity of demand to determine the change in quantity demanded for a given percentage change in the price I will use the All America Grocery Inc. Now to clarify all the price elasticities of demand given in the problem were the absolute value. Remember that the price elasticity of demand as computed will always have a negative sign (because the demand curve is downward sloping, price and quantity always move inversely to each other hence the negative sign), so the .20 elasticity is a measure of how much the quantity demanded will change which price changes. So it is estimated that cost push inflation might increase cost by 10% so we are looking at possible increase in the price of 10%. To find the percentage change in the quantity we simply write Δ% q = e * Δ%p, or we want to find an e= .20 times 10%, or Δ% q=.20*10% =2.0%. All America Grocery Inc has an inelastic demand curve since e is less than 1. Therefore the percentage change in the quantity demanded 2% is much less that the percentage change in the price of 10%.

Now profitability is mutually determined by both supply and demand. In the case of the grocery business all competitors would be facing the same pressure on cost and since all grocery businesses face the same relatively inelastic demand curve, the majority of the cost increase will be passed on to consumers. Profits will decrease, but not by much.

One key lesson here is that increasing cost whether it is from inflation or from other cost increases like tariffs or taxes are highly regressive. Lower income families spend much more of their total income and therefore bear a significantly high incidence of any increase in costs.

just to be complete with the feedback, let's look at the other two cases. Very Big US Auto has a price elasticity of demand of 1.2 and Big Time Entertainment has an even more elastic demand curve of 1.6. Both elasticities are greater than 1. The percentage decrease in the quantity demanded for Very Big US Auto will be Δ% q = e * Δ%p or Δ% q is 1.2*10% or Δ% q = 12%. Since the demand curve is very elastic the percentage change in the quantity demanded is larger, 12%, than the percentage change in price of 10%. Similarly, Big Time Entertainment will have Δ% q = e * Δ%p or Δ% q = 1.6* 10% or Δ% q = 16%. Firms with a relatively elastic demand will avoid as much as possible passing on increases in price.

Let's explore one last element. All manufacturers of autos are likely to face similar increase in cost. The auto industry is an oligopoly and in an oligopoly firms typically try to avoid competing directly on the based sticker price. Firms will do such things as offer fewer items in each 'package,' reduce the rate of change in technology enhancements and offer rebates. Of course, with a relatively elastic demand curve, rebates work, i.e. people are sensitive to price changes or great deals! So, firms in the auto industry will see profits fall, but the industry is saved by one thing. In the era of Covid-19 ride sharing and public transportation are now viewed an poor substitutes for privately owned auto. While profits get squeezed by the higher cost which the firms will not pass on to consumers, demand has been somewhat sustained by the change in preference for socially distant transportation modes.

Big Time Entertainment has an even more elastic demand curve than Very Big US Auto and they will face even more pressure not to pass on cost increases. Why? Big Time Entertainment in the time of Covid-19 has a lot of safer good substitutes, online entertainment. Raising price will only drive consumers to those alternative entertainment options. With a very elastic demand curve and with a lot of good substitutes, their profitability will be most reduced by cost push inflation than in an industry like autos where there are fewer good substitutes. In fact, there may not be a strategy to save many of the in-person entertainment venues. Sometimes, as a CEO you have to be ready to make the hard decisions.

Please always do at least 1 reply to another person on the subject under discussion.

, Here are some tips that will help you write more effectively in the case study style of writing. This week the best approach was to write if you were the adviser/board chair. The case study style is very much helped if you place yourself in the protagonist role and write in a voice of authority. It is also good to lead with the conclusion staring how profits will be impacted. For example, "if we try to increase our prices by 10% the quantity demanded will decrease by x%." You can then show the calculations working in to the presentation. How you arrive at you conclusion becomes seamless with the fact underlying the decision. That flow of explanation gets the people's attention and provides a head up for what to look for in the explanation. Now you have also started doing what I consider the second tip for successful case study writing. In this particular case you did not need to provide contrasts between the three example but you did. In the future you may be asked to do just that, prepare a comparison with contrast between cases.