Competitor charges for substitute product

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Reference no: EM131097751

You are given the following information: (a) Your firm’s demand equation is defined as follows: Q_d=100-4P_A+2P_s+.1I, where Q_d is the quantity demanded for your product, P_A is the price that you charge for your product, P_s is the price that a competitor charges for a substitute product, and I is the income for your consumers. You have a current estimate for all of the variables (at the present levels): (a) Q_d: 160, (b) P_A: $20.00, (c) P_s: $20.00, and (d) I: $1,000. Answer the following questions: (a) Calculate the elasticity of demand with respect to changes in your price. Comment on what this result implies (one to two sentences will suffice). (b) Calculate the elasticity of demand with respect to changes in your competitor’s price. Comment on what this result implies (one to two sentences will suffice). (c) Calculate the elasticity of demand with respect to changes in the income of your consumer. Comment on what this result implies (one to two sentences will suffice).

Reference no: EM131097751

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