This is an unformatted preview. Please download the attached document for the original format.You are the manager for Dunkin Donuts and know the following elasticities:η= 1.5η I = 1.2η xy1 = 0.5η xy2 = -0.5η is the price elasticity of demand for Dunkin Donuts (DD) glazed doughnuts, ηxy1is the cross elasticity of demand between DD glazed doughnuts and Krispy Kreme(KK) glazed doughnuts, ηxy2 is the cross elasticity of demand between DD glazeddoughnuts and DD French Vanilla coffee, and η I is the income elasticity of DDglazed doughnuts.a) If you want to increase your sales of glazed doughnuts by 30%, in what directionand by how much do you need to change the price?b) If you make the percentage price change that you calculated in part a) will totalrevenue increase or decrease? How do you know?c) Krispy Kreme lowers its price of glazed doughnuts by 20%. The demand forDunkin Donuts glazed doughnuts will change by what percentage and in whatdirection?d) Dunkin Donuts raises the price of its French Vanilla coffee by 15%. The demandfor Dunkin Donuts glazed doughnuts will change by what percentage and in whatdirection?e) If average income increases by 5% by what percentage and in what direction willthe demand for Dunkin Donuts glazed doughnuts change? Are DD glazeddoughnuts a normal good or an inferior good and how do you know?
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