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In: Economics

A DVD rental firm is currently renting 8,000 DVDs per year. How many DVDs will the...

A DVD rental firm is currently renting 8,000 DVDs per year. How many DVDs will the firm be renting in 10 years if the demand for DVD rentals is expected to increase by 7% per year

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Expert Solution

DVD RENTAL FIRM CURRENTLY RENTING 8000 DVD'S PER YEAR.

AND DEMAND RATE IS INCREASING 7%.

YEAR SALE OF PREVIOUS YEAR (A) DEMAND RATE (B) TOTAL VALUE (A+B)
1 8000 7% 8560
2 8560 7% 9159.
3 9159 7% 9800.
4 9800 7% 10486
5 10486 7% 11220
6 11220 7% 12005
7 12005 7% 12845
8 12845 7% 13744
9 13744 7% 14706
10 14706 7% 15735

HERE THE DEMAND AT THE END OF 10 YEARS IS 15735 WITH A CONDITION OF CONSTANT INCREASE IN THE DEMAND RATE EVERY YEAR .

CALCULATION:

FOR FIRST YEAR = DEMAND OF PREVIOUS YEAR + DEMAND RATE

= 8000 +(7% *8000)

= 8000+560

= 8560

FOR SECOND YEAR = DEMAND OF PREVIOUS YEAR + DEMAND RATE

= 8560 +(7%*8560)

=8560+599

= 9159

FOR THIRD YEAR = DEMAND OF PREVIOUS YEAR + DEMAND RATE

=9159+(7%*9159)

=9159+641

=9800

FOR FOURTH YEAR = DEMAND OF PREVIOUS YEAR + DEMAND RATE

= 9800 +(7%*9800)

= 9800+686

= 10486

FOR FIFTH YEAR = DEMAND OF PREVIOUS YEAR + DEMAND RATE

= 10486+ (7%*10486)

= 10486+734

= 11220

FOR SIXTH YEAR = DEMAND OF PREVIOUS YEAR+ DEMAND RATE

= 11220 +(7%*11220)

= 11220+785

=12005

FOR SEVENTH YEAR = DEMAND OF PREVIOUS YEAR + DEMAND RATE

=12005 +(7%*12005)

=12005 +840

=12845

FOR EIGHT YEAR = DEMAND FOR PREVIOUS YEAR + DEMAND RATE

= 12845 +(7%*12845)

=12845 +899

=13744

FOR NINTH YEAR = DEMAND OF PREVIOUS YEAR + DEMAND RATE

= 13744 + (7%*13744)

=14706 +962

FOR TENTH YEAR = DEMAND OF PREVIOUS YEAR + DEMAND RATE

= 14706+ (7%*14706)

=14706 + 1029

= 15735

Rahul Sunny answered 2 years ago
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