5. The demand curve for a product is given by Qdx = 1,000 - 2Px + .02Pz where Pz = $400. (Hint: If you're not comfortable with the calculus alternatives, compute Q at the given prices, then again with a 1% increase in price. Then figure percentage change in Q over the percentage change in P, %Q/%P).
a. What is the own-price elasticity of demand when Px = $154? Is the demand elastic or inelastic? What would happen to the firm's revenue if it decided to charge a price below $154?
b. What is the own-price elasticity of demand when Px = $354? Is the demand elastic or inelastic? What would happen to the firm's revenue if it decided to charge a price below $354?
c. What is the cross-price elasticity of demand between good X and good Z when Px = $154? Are good X and good Z substitutes are complements?
5. The demand curve for a product is given by Qdx = 1,000 - 2Px + .02Pz where Pz = $400. (Hint: If you're not comfortable with the calculus alternatives, compute Q at the given prices, then again with a 1% increase in price. Then figure percentage change in Q over the percentage change in P, %Q/%P).
a. What is the own-price elasticity of demand when Px = $154? Is the demand elastic or inelastic? What would happen to the firm's revenue if it decided to charge a price below $154?
b. What is the own-price elasticity of demand when Px = $354? Is the demand elastic or inelastic? What would happen to the firm's revenue if it decided to charge a price below $354?
c. What is the cross-price elasticity of demand between good X and good Z when Px = $154? Are good X and good Z substitutes are complements?
