You are __Marketing Manager for Bud Beer__, produced by the Budweiser Division of

Anheuser-Busch, the brewing company with the highest market share in the United States. The

second-highest market share belongs to Miller’s Beer, produced by Miller Brewer Company. So you know that Miller’s is your most-important competitor. You also know that watching football on TV makes beer more enjoyable. Therefore Bud sales (the demand for Bud Beer—quantity of Bud Beer demanded, number of six-packs per week) depends on the price of Bud beer (dollars per six-pack), the price of Miller’s Beer (dollars per six-pack), and TV football (number of football games on TV per week). __Currently, the level of Bud sales is eight million six-packs weekly.__

Here are three scenarios, which are independent of each other; so they should be answered separately. Parts (a) and (b) of scenarios 1 and 2 are each worth one point, and scenario 3 is worth one point. Thus a total maximum point score of five.

**Scenario 1.**The CEO asks you to __predict the increase in Bud sales if Bud price is reduced by ten percent__. You have to make a sensible prediction.

**(a)**In the context of this scenario, what elasticity information do you need? **(i)**Name this elasticity **(ii)**Define this elasticity.

**(b)**What assumptions must you make using this elasticity for your prediction? __Explain your answer.__

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**Scenario 2.**The CEO has learned that __Miller will reduce the price of its beer by five percent__. The CEO wants to know the __effect on Bud sales__if she does not reduce the price of Bud beer and if TV football is unchanged. Your staff informs you that the cross-price elasticity of the demand for Bud beer with respect to the price of Miller’s beer is 2.

**(a) **Why is this elasticity positive (+2) rather than negative (-2)? __Explain thoroughly.__

**(b)**What is the __new level__of Bud sales (number of six-packs per week)? __Show your computation.__

__Hint:__Be sure to distinguish between the change in sales and the new level of sales.

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**Scenario 3.**The National Football League announces that __TV football will increase from 95 games to 105 games__. Your staff informs you that, assuming the price of Bud beer and the price of Miller’s beer do not change, __Bud sales will increase from eight million to ten million weekly__.

__Using the “midpoint method__,” compute the “elasticity of demand for Bud beer with respect to TV football.” __Show your computation.__