Question

The following questions are based upon the firm demand curve for a food given by: Q = 12-4P+2Px+8INC Where Q is the quantity demanded, P is the price of the good, Px is the price of another good, and INCis income. 1. (1 pt.) If P=10, Px=10 and INC=20, what is the price elasticity of demand, Ep? 2. (1 pt.) At P=10, this firm is pricing on the elastic/inelastic region of its demand curve. 3. (1 pt.) At P=10, the firm could increase revenue by decreasing/increasing price. 4. (1 pt.) Can a firm ever increase its revenue by decreasing its price? Yes/No. 5. (1 pt.) If INC were 30 and Q were 200, what is the income elasticity? 6. (3 pts.) Let Q and P be unknown, Px=10, INC=20; what price would maximize the firm's revenue? 7. (2 pts.) Let Q and P be unknown, Px=10, INC=20; match the elasticities to the correct number: a. Cross-Price Elasticity from good X b. Income Elasticity C. Price Elasticity of Demand Possibilities are:-1.0, 0.21, 1.7.

Answer 1

bor bus 8 = 12-up & a Px + 8 Ine 1) if p 210 Px 210 INC 201 9 2 12 - (4x10) + (2x 10) + ( 8X20) 2152 & price elasticity of demand I --4x 152 2 - 0.26 Ep = -0.26) Noo 2.) at p 210 EP - 1-0.261 0.26 which is a less than & So demand in Tinelantion 3) Do demand is inelastie, people will e not respond much to priee ehange. 12 when price will be increased, demand will be decreased. But imerease in price Decrease in demand. So Revenue will be inereased. ... firm could imerease revenue by increasing oprice. bo

Week 28 w when demand is elastie, á small decrease in price would increase the demand by large extent. So revenue = P x 9 will be increased. .: Yes firm can increase revenue by decreasing its price o 5) 260 8 ß iwe? 30 03 > 200 8 2 12 -up +2 px + 8 one of income elasticity 48 Ine inexa Sunday 14 Week 29 we & Isne = 8x 30 = 12 67 x = 1o. Ine = 20 68 2 12-4P + (2x10) +(8x20) & 2 192 - 4P 4P 192-9 3 p 248 - 8/4

UCUN 20 - TR 2p 8 = 488 - 8/4 b d (AR) - 48 - 8/2 2o a 9 8/2 248 TO 9296 o no p = 48 - 96/4 = 48 - 24 =24 Firm's revenue would be maximized at p = $24 & 8 296 08 - one