Question

Universal Studios sold the Mamma​ Mia! DVD around the world. Universal charged​ $21.40 in Canada and​ $32 in Japanlong dashmore than the​ $20 it charged in the United States. Assume​ Universal's marginal cost of production​ (m) is ​$1.20. Determine what the elasticities of demand must be in Canada and in Japan if Universal is profit maximizingLOADING.... The elasticity of demand in Canada must be epsilon Subscript Upper Cequals negative 1.059. ​(Enter a numeric response using a real number rounded to three decimal​ places.) The elasticity of demand in Japan must be epsilon Subscript Upper Jequals negative 1.039. ​(Enter a numeric response using a real number rounded to three decimal​ places.)

Answer 1

P Ed [Canada] = 1.075 ; P Ed [Japan] = 1.04

Step-by-step explanation:

As per Lerner Index : 1 / P Ed = (P - MC) / P ; where

P Ed = Price Elasticity of Demand, P = Price, MC = Marginal Cost

• Canada :

1 / P Ed = ( 21.40 - 1.20 ) / 21.40

1 / P Ed = 20.2 / 21.40 = 0.93

P Ed = 1 / 0.93 = 1.075

• Japan :

1 / P Ed = ( 32 - 1.20 ) / 32

1 / P Ed = 30.8 / 32 = 0.96

P Ed = 1 / 0.96 = 1.04