SaveUmoney Tax Services (STS) is a small operation that offers tax services to i

Question

SaveUmoney Tax Services (STS) is a small operation that offers tax services to individuals and small businesses. A local marketing consultant has estimated the weekly demand for STS's services as follows: Q = 1000 - 7 P + 25 A where: Q = the number of tax returns prepared per week P= price A= advertisement (the number newspaper ads) Presently STS charges (on average) $55 per tax return and each week places 10 ads in a local newspaper. Each newspaper ad costs $140. a. How many tax returns does STS prepare each week? b. What is the price elasticity of demand at the price of $55, assuming the number of ads remains the same (at ten)? c. What is the elasticity of demand with respect to advertisement?

Explanation / Answer

Q = 1000 - 7 P + 25 A a) no of tax returns = 1000 - 7*55 + 25*10 = 865 per week

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