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Question 1
Suppose the demand for Netflix is given by: QN = a - bN PN + bH PH , where QN is the number of Netflix subscriptions, PN is the price of a Netflix plan and PH the price of a Hulu plan.
(a) What is the formula for price elasticity of demand for Netflix subscriptions?
(b) Suppose a = 500, bN = 10, bH = 5 and PN = PH = 50. What is price elasticity for Netflix?(c) What is the cross-price elasticity for Netflix? Write down the formula and calculate.
(d) And Netflix and Hulu substitutes of complements? Explain why using answers from (b) and (c)?(e) What do the consumers get in surplus at these prices listed in (b)?
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