1. In how many different ways can you reorder the letters of the word SUBBOOKKEEPER. a) 13! b) 8! c) 13! / 3! x 2! x 2! x 2! x 1! x1! x 1! x 1! d) 13P8 2. To win a State Lottery a person must select the six winning numbers from 1,2,3, Solution c) 13! / 3! x 2! x 2! x 2! x 1! x1! x 1! x 1! d) 38C6 x 28.

1. 1. In March 2010, Mc Donald’s Corp. announced apolicy to increase summer sales by selling all
softdrinks, no matter the size, for $1.00. The policywould run for 150 days starting after
MemorialDay. The $1.00 drink prices were a discount fromthe suggested price of $1.39 for a
large soda. Somefranchisees worried that discounting drinks,whose sales compensate for
discounts on otherproducts, could hurt overall profits, especiallyif customers bought other items
from the DollarMenu. McDonald’s managers expected this promotionwould draw customers
from other fastfoodchains and from convenience stores such as7-Eleven. Additional customers
would also helpMcDonald’s push its new beverage lineup that includedsmoothies and frappes.
Discounted drinksdid cut into McDonald’s coffee sales in previousyears as some customers
chose the drinks ratherthan pricier espresso beverages. Other chains withnew drink offerings,
such as Burger King and TacoBell, could face pressure from the $1.00 drinks atMcDonald’s.47a.
Given the change in price for a large sodafrom $1.39 to $1.00, how much would
quantitydemanded have to increase for McDonald’s revenuesto increase? (Use the arc elasticity
formulafor any percentage change calculations.)b. What is the sign of the implied cross-price
elasticitywith drinks from McDonald’s competitors?c. What are the other benefits and costs
toMcDonald’s of this discount drink policy?1. In March 2010, Mc Donald’s Corp. announced
apolicy to increase summer sales by selling all softdrinks, no matter the size, for $1.00. The
policywould run for 150 days starting after MemorialDay. The $1.00 drink prices were a
discount fromthe suggested price of $1.39 for a large soda. Somefranchisees worried that
discounting drinks,whose sales compensate for discounts on otherproducts, could hurt overall
profits, especiallyif customers bought other items from the DollarMenu. McDonald’s managers
expected this promotionwould draw customers from other fastfoodchains and from convenience
stores such as7-Eleven. Additional customers would also helpMcDonald’s push its new beverage
lineup that includedsmoothies and frappes. Discounted drinksdid cut into McDonald’s coffee
sales in previousyears as some customers chose the drinks ratherthan pricier espresso beverages.
Other chains withnew drink offerings, such as Burger King and TacoBell, could face pressure
from the $1.00 drinks atMcDonald’s.47a. Given the change in price for a large sodafrom $1.39
to $1.00, how much would quantitydemanded have to increase for McDonald’s revenuesto
increase? (Use the arc elasticity formulafor any percentage change calculations.)b. What is the
sign of the implied cross-price elasticitywith drinks from McDonald’s competitors?c. What are
the other benefits and costs toMcDonald’s of this discount drink policy?1. In March 2010, Mc
Donald’s Corp. announced apolicy to increase summer sales by selling all softdrinks, no matter
the size, for $1.00. The policywould run for 150 days starting after MemorialDay. The $1.00
drink prices were a discount fromthe suggested price of $1.39 for a large soda. Somefranchisees
worried that discounting drinks,whose sales compensate for discounts on otherproducts, could

2. hurt overall profits, especiallyif customers bought other items from the DollarMenu.
McDonald’s managers expected this promotionwould draw customers from other
fastfoodchains and from convenience stores such as7-Eleven. Additional customers would also
helpMcDonald’s push its new beverage lineup that includedsmoothies and frappes. Discounted
drinksdid cut into McDonald’s coffee sales in previousyears as some customers chose the
drinks ratherthan pricier espresso beverages. Other chains withnew drink offerings, such as
Burger King and TacoBell, could face pressure from the $1.00 drinks atMcDonald’s.47a. Given
the change in price for a large sodafrom $1.39 to $1.00, how much would quantitydemanded
have to increase for McDonald’s revenuesto increase? (Use the arc elasticity formulafor any
percentage change calculations.)b. What is the sign of the implied cross-price elasticitywith
drinks from McDonald’s competitors?c. What are the other benefits and costs toMcDonald’s of
this discount drink policy?1. In March 2010, Mc Donald’s Corp. announced apolicy to increase
summer sales by selling all softdrinks, no matter the size, for $1.00. The policywould run for
150 days starting after MemorialDay. The $1.00 drink prices were a discount fromthe suggested
price of $1.39 for a large soda. Somefranchisees worried that discounting drinks,whose sales
compensate for discounts on otherproducts, could hurt overall profits, especiallyif customers
bought other items from the DollarMenu. McDonald’s managers expected this promotionwould
draw customers from other fastfoodchains and from convenience stores such as7-Eleven.
Additional customers would also helpMcDonald’s push its new beverage lineup that
includedsmoothies and frappes. Discounted drinksdid cut into McDonald’s coffee sales in
previousyears as some customers chose the drinks ratherthan pricier espresso beverages. Other
chains withnew drink offerings, such as Burger King and TacoBell, could face pressure from
the $1.00 drinks atMcDonald’s.47a. Given the change in price for a large sodafrom $1.39 to
$1.00, how much would quantitydemanded have to increase for McDonald’s revenuesto
increase? (Use the arc elasticity formulafor any percentage change calculations.)b. What is the
sign of the implied cross-price elasticitywith drinks from McDonald’s competitors?c. What are
the other benefits and costs toMcDonald’s of this discount drink policy?
Solution
a) With decrease in price of a product, the demand increases and hence the unit sales will
increase
With regards to Revenue
Total Revenue = Price * Quantity
Decrease in the price of textbook will have the following effects:
Price Effect: Each unit is sold at a lower cost which tends to decrease revenue

3. Quantity Effect: With decrease in price, more units are sold which tends to increase revenue
Total revenue will increase or decrease is dependent on which effect is stronger (price or
quantity). This in turn depends on the price elasticity of the product.
When demand is elastic demand (as is the case with soft drinks) - Change in quantity will be
more and hence the quantity effect dominates the price effect. So a decrease will lead to increase
in the total revenue.
Given the above, in order to increase revenue, the quantity of the soft drinks should increase by
39%
Algebraically, this can also be found out as follows:
Now, we want the new revenue to be greater than the old one.
y > 1.39x
y/x > 1.39
(y - x)/x > 1.39 - 1
(y - x)/x > 0.39
b) The cross-elasticity of demand is defined as the proportionate change in the quantity
demanded of x resulting from a proportionate change in the price of y. In case there is an
increase in the same of soft-drinks at McDonalds, it results in decrease in demand of drinks for
its competitos. Therefore, sign of the implied cross-price elasticity with drinks from
McDonaldPriceQuantityRevenueOld1.39x1.39xNew1yy