Assume that the demand function for salami is Q-100-40P +51 + 11 PC- where Q is

Question

Assume that the demand function for salami is Q-100-40P +51 + 11 PC- where Q is the quantity demanded of salami in pounds per month P is the price of salami in dollars per pound I is average household income in thousands of dollars per year Pc is the price of cheese in dollars per pound Answer questions 2-4 based on this information. 2. According to this demand function: a. salami is inferior b. salami is a Giffen good &cheese; and salami are substitutes d. cheese and salami are complements e mustard is a Giffen good. 3. According to this demand function, if the price of cheese is currently $5 per pound and average annual household income is $40,000 then the horizontal intercept for the demand curve is tnmnd finction. If the price of cheese decreases by $2 per pound then:

Explanation / Answer

2. Option c
Notice that coefficient of Pc is positive. That is when price of cheese increases. the quantity demanded for salami will increase. It indicates that both are substitutes.

3.
We know that Q = 100 – 40*P + 5*I + 11*Pc

Substituting Pc = 5 and I = $40,000, we get

Q = 100 – 40*P + 5*40000 + 11*5 = 100 + 200055 – 40*P
Q = 200155 – 40*P

The horizontal intercept refers to the intercept on the X-axis which can be calculated by putting P =0.

Q = 200155 – 40*0 = 200155

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