chapter 3 #2 2. The demand curve for a product Is given by Qd x = 1,000 ? 2Px +
ID: 1193931 • Letter: C
Question
chapter 3 #2 2. The demand curve for a product Is given by Qd x = 1,000 ? 2Px + .02p, where Pz = $400. a. What Is the own price elasticity of demand when Px = $154? Is demand elastic or Inelastic at this price? 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 J = $354? Is demand elastic or inelastic at this price? What would happen to the firm?s revenue if it decided to charge a price above $354? c. What Is the cross-price elasticity of demand between good X and good Z when px = $154? Are goods X and Z substitutes or complements?Explanation / Answer
a.)
Qd = 1000 - 2Px+0.02Pz
=1000 -2(154)+0.02(400)
=1000 -308+8
=700
dQ/dP = -2
Elasticity of demand = (dQ/dP)*P/Q
=-2*154/700
=0.44
demand inelastic hence price below 154 will decrease overall revenue.
b)
Qd = 1000 - 2Px+0.02Pz
=1000 -2(354)+0.02(400)
=1000 -708+8
=300
dQ/dP = -2
Elasticity of demand = (dQ/dP)*P/Q
=-2*354/300
=2.36
demand elastic hence price below 354 will increase overall revenue.
c)
Qd = 1000 - 2Px+0.02Pz
=1000 -2(154)+0.02(400)
=1000 -308+8
=700
dQx/dPz = -0.02
Elasticity of demand = (dQ/dP)*P/Q
=-0.02*400/700
=0.011
These are substitute to each other since cross price elasticity of demand is positive.
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