Interpreting elasticity coefficients

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Reference no: EM1366956

Price elasticity of demand and Income elasticity of demand

(1) (2) (3) (4)
Electricity Price Natural gas Price Oil Price Income
Electricity -0.6 1.6 1.0 0.9
Natural Gas 1.1 -1.7 1.3 0.8
Oil 0.8 1.5 -1.9 -1.2

a) From those coefficients would you suggest electricity company to increase or decrease electricity price to make more revenues. Justify.

b) After a 25% increase on oil price and considering the fact electricity company cannot increase their production of electricity what price variation of electricity is require to cancel any change on electricity demand. Justify.

c) What impacts will have the construction of a new natural gas company on oil demand. And on electricity demand? Justify.

Reference no: EM1366956

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