Global Economic Environment

1. Use price elasticity estimator on page 74. The desired markup is 1/׀e׀=1/the absolute value of the price elasticity. The initial actual markup is (P-MC)/P, P=$8.50.

P6-3: What would happen to the elasticity of demand in the long run (p. 75)? 3. P6-5: Use (P-MC)/P = 1/׀e׀ to calculate MC, and then use the same equation to find out the new price

P15(b) is to evaluate the above regression results in terms of the signs of the coefficients, the statistical significance of the coefficients, and the explanatory power of the regression (R2). The number in parentheses below the estimated slope coefficients refer to the estimated t values. The rule of thumb for testing the significance of the coefficients is if the absolute t value is greater than 2, the coefficient is significant, which means the coefficient is significantly different from 0. For example, the absolute t value for Px is 5.12, which is greater than 2; therefore, the coefficient of Px, (-9.50) is significant. In order words, Px does affect Qx. If the price of the commodity X increases by $1, the quantity demanded (Qx) will decrease by 9.50 units. 3.

P15(c): Are X and Z complements or substitutes?