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:
QJ = 150 - 200 PJ - 100 PC + 10 T - 150 AC + 250 AJ where QJ = the number of beers served per week
PJ = the price of Joy's new high-alcohol content beer
PC = Average price of the competition
T = Average outdoor temperature (measured in ya-ba-da-ba-doo degrees)
AC = Monthly Advertising expenditures (in units) by the competition
AJ = Monthly Advertising expenditures (in units) by Joy's outlets
Currently PJ = 7.00, PC = 6.00, T = 35, AC = 10, and AJ = 20.
1. Should PJ be increased or decreased to maximize revenue? How do you know?
2. Calculate the elasticity of demand for Joy's beer with respect to PC, T, and AC.
3. Calculate the price range over which the demand for Joy's beer is price elastic.
4. If the cost per beer is 5 and Joy's behaves as a monopolist, how many beers will be sold and at what price?