1. DRQ #3 September 17, 2009
Suppose that the demand for organic milk is given by
Qd = 100 – 20P.
(Qd is in terms of millions of gallons and P is in terms of dollars per gallon.)
(2pts) (a) Let P = $3/gallon. Calculate the number of gallons demanded at this price. Do not forget appropriate units. 40 million gallons
(2pts) (b) Calculate the own-price elasticity of demand at
P = $3/gallon. Show all work. (-20*3)/40 = -1.5
(2pts) (c) Characterize the demand for organic milk at P = $3/gallon. elastic
(2pts) (d) If retailers wish to maximize total revenue, based on your answer in (c), what pricing strategy should they employ? lower price
(2pts) (e) Give two additional potential determinants of the demand for organic milk. price of conventional milk, price of other beverages, income, advertising, seasonality