Reference no: EM132318024
The demand for good X is given by the following equation:
QX = 325 - PX - 1.5 PW + 1.25 PG + 0.8 PY - 0.1 M
where QX is the number of X sold per week; PX, PW, PG, PY are the prices of the respective goods and M is the average monthly income.
Currently PX = 200, PW = 50, PG = 80, PY= 125, and M = 2000.
(a) Should PX be increased or decreased to maximize revenue? How do you know?
(b) Calculate the elasticity of demand for good X with respect to PW, PG, PY and M. In less than two sentences, explain precisely what each elasticity measure means.
(c) Calculate the price range over which the demand for good X is elastic.
(d) If the cost per X is 100 and the manufacturer behaves as a monopolist, how many X will be sold and at what price?
(e) By how much must the price of X change if there is a 1% increase in the average monthly income (M) and the goal is to keep QX constant?