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NYU-Competitive Analysis-Midterm practice solutions.
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1. Webflicks. When Webflicks increased monthly subscription fees from $15 to $17, 16% of its subscribers switched to alternative providers. (a) Provide an estimate of Webflicks demand elasticity. Answer: Using the percent variation method, we get ≈ −16% 17−15 15 = −1.2 Alternatively, we can use the logarithm’s approach. A drop of 16% corresponds to a change from 100 to 84. ≈ log(84) − log(100) log(17) − log(15) = −1.393 (b) Assuming that Webflicks’ demand curve has constant elasticity, and assuming that the marginal cost of an additional subscribers is $2.20 (per month), determine Webflicks’ optimal price. Answer: Optimal price is given by p = 2.2 1 + 1/(−1.2) = 13.2
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Institution
New York University
Course
ECON-UB 0015
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New York University
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ECON-UB 0015
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- Uploaded on
- November 3, 2022
- Number of pages
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- Written in
- 2022/2023
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- webflicks
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nyu competitive analysis midterm practice solutions
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