Setting: U.S. Auto manufacturers are trying to develop a multivariate function w

Question

Setting: U.S. Auto manufacturers are trying to develop a multivariate function with which to estimate the demand for their gas-electric hybrid compact cars. Here is one that Motors General developed for its Jolt: Where Oi - the number of Jolts demanded per week. Pithe price of each new Jolt (in S) Pf- the price of each new Ford gas-electric hybrid (in S). Pt- the price of each new Toyota gas-electric hybrid (in S) Pb- the price of replacement batteries for the Jolt (in S) Tc = the amount of tax credit incentive offered with the purchase of a new hybrid (in $) Yaverage weekly disposable income of a typical Jolt purchaser (in S) = the miles per gallon of gas rating ofthe Jolt (in miles per gallon) A = average weekly Jolt advertising expenditure (in $) What is the point cross-price elasticity of Jolt demand with respect to the Toyota price (Pt) of S55000? Work out completely and show the sign (+ or-); carry out to 3 decimal places. The formula is: 0.373 +0.000031 +0.529 +0.780 +0.85 +1.044

Explanation / Answer

dQj/dPt = 35

Pt = 55,000

Qj when Pt is 55,000 = 1,860,000

Substituting

=dQ/dp * P/Q

= 35*55000/1860 000

= 1.034

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