Reference no: EM13186577
The demand for Wanderlust Travel Services (X) is estimated to be Qx = 22,000 - 2.5Px + 4Py - 1M + 1.5Ax, where Ax represents the amount of advertising spent on X and the other variables have their usual interpretations. Suppose the price of good X is $450, good Y sells for $40, the company utilizes 3,000 units of advertising, and consumer income is $20,000.
a. Calculate the own price elasticity of demand at these values of prices, income, and advertising.
b. Is demand elastic, inelastic, or unitary elastic?
c. Calculate income elasticity of demand. Is this good normal or inferior good?
d. If consumer income is expected to increase by 4% next year, by how much the price needs to change in order to maintain the same number of customers?
d. Calculate cross price elasticity. Are goods X and Y complements or substitutes?
e. Assume that you are thinking about changing the price of good X. Rewrite the demand function for good x in terms of Q and Px (you just have to evaluate your demand function at Py, M, and Ax, so it looks like Q = a-bPx)
f. Find a total revenue function and find the quantity that maximizes total revenue. At this quantity, is demand elastic, inelastic, or unit elastic?
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: The demand for Wanderlust Travel Services (X) is estimated to be Qx = 22,000 - 2.5Px + 4Py - 1M + 1.5Ax, where Ax represents the amount of advertising spent on X and the other variables have their usual interpretations. Suppose the price of good X..
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