03 Jun Question Question 1 The following is taken from the San Jose
Question
Question 1
The following is taken from the San Jose Mercury News, July 27, 2000:
“The Mexican arm of U.S. Internet giant America Online Inc. said on Wednesday it started a financing program to help aid in the purchase of personal computers, joining a list of companies that have launched similar programs to promote Internet use.
“AOL will be joined in the program by computer giant Compaq Computer Corp. and Mexico’s second-largest banking group Banamex Accival, AOL said in a statement.
“The program, known as ‘PC Facil’ (Easy PC) aims to help clients acquire a PC, enabling them to hook up to the Internet and the ‘unique benefits’ of AOL service, said AOL Director of Markets Erick Sydow. In Mexico there are only an estimated five personal computers per 100 people, which is one of the reasons that Internet use there is still low.”
Using the economic analysis, briefly answer each of the three questions below:
a. What potential benefits did AOL expect to receive from subsidizing computer sales in Mexico?
b. What observations can you make about the cross-elasticity of demand for AOL services and computer ownership?
Question 2
You operate a small but popular and profitable restaurant/bar in a college town. There are several other restaurants and bars nearby. You have conducted a market research study and discovered that the price elasticity of demand for local residents is lower (less elastic) than the price elasticity of demand for college students, who are usually in town only while the college is in session about 9 months out of the year. Discuss at least tw
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