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The demand curve for a product is given by Q d/x = 1,200 - 3Px - 0.1 Pz, where PZ = $300 n(price of related good). What is the own price elasticity of demand when PX = $240? Is demand elastic or inelastic at this price? What would happen to the firm's revenue if it decided to charge a price above $240.
At the given prices, quantity demanded is 450 units: Q X d = 1,200 - 3(240) - 0.1(300) = 450. Substituting the relevant information into the elasticity formula gives: E Qx,Pz = -3(P X / Q X ) = -3(240 / 450) = -1.6. Since this is greater than one in absolute value, demand is elastic at this price. If the firm increased its price, total revenue would decrease.
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