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Determinants of Demand
Suppose the demand (in millions) for a computer game takes the form of the following equation:
Q = 250 - 10P + 20P(y)
where P is the price of the game and P(y) is the price of a competitor's similar game. Assume the price of the game is currently $50 and the price of the competitor's game is $40.
Based on the provided information, compute the following:
a. Quantity demanded at these prices
b. Price elasticity of demand
c. Cross-price elasticity of demand
Analyze the results and determine if the game maker should raise the price of its game.
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