Reference no: EM132505195

Netflix has estimated their demand function on the service that it provides as follows:

Q = 212 - 9.5 p + 0.8 A + 2.8 Y - 1.2 p*

Where Q = monthly sales in units P = price of the service in $ A = promotional expenditure in

000 Y = average income of the market in

000 P* = price of 'home movies' in $

The current price of Netflix is $20, promotional expenditure is $80, average income is $15 and the price of 'home movies' is $10. Indicate whether the following statements are true or false, giving your reasons and making the necessary corrections:

1) If Netflix increases its price this will reduce the number of its customers.

2) If Netflix increases its price this will reduce its revenues.

3) If income increases by 25%, customer's expenditure on Netflix will increase by 9%.

4) If Netflix increases its price this will increase the sales of 'home movies'.

5) 'Home movies' are a substitute for Netflix.

6) A 10 % increase in price will reduce demand by 12%.

7) Current sales are over 500 units a month.

8) If Netflix decreases its price this will reduce its revenues.