The demand curve for a product is given by QXd = 1,200 - 3PX - 0.1PZ where Pz = $300.
a. What is the own price elasticity of demand when Px = $140?
Is demand elastic or inelastic at this price?
What would happen to the firm’s revenue if it decided to charge a price below $140? Instruction: Enter your response rounded to two decimal places. Own price elasticity: Demand is: If the firm prices below $140, revenue will:
b. What is the own price elasticity of demand when Px = $240? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price above $240? Instruction: Enter your response rounded to one decimal place. Own price elasticity: Demand is: If the firm prices above $240, revenue will:
c. What is the cross-price elasticity of demand between good X and good Z when Px = $140? Are goods X and Z substitutes or complements? Instruction: Enter your response rounded to two decimal places. Cross-price elasticity: Goods X and Z are:
Demand function is QXd = 1,200 - 3PX - 0.1PZ
a. Own price elasticity of demand is given by PED = price coefficient of X * PX/QX.
Here, Pz = $300 and Px = $140.
Then PED = -3*140/(1200 - 3*140 - 0.1*300)
PED = -0.56
Since absolute value of PED is less than 1, the demand is considered inelastic at this price
There will be a decline in firm’s revenue if it decided to charge a price below $140 this is because when demand is inelastic, price and revenue move in same direction. Revenue will decline
b.Own price elasticity of demand is given by PED = price coefficient of X * PX/QX.
Here, Pz = $300 and Px = $240.
Then PED = -3*240/(1200 - 3*240 - 0.1*300)
PED = -1.6
Since absolute value of PED is more than 1, the demand is considered elastic at this price
There will be an increase in firm’s revenue if it decided to charge a price above $240 this is because when demand is elastic, price and revenue move in opposite direction. Revenue will decline
c. What is the cross-price elasticity of demand between good X and good Z when Px = $140?
CPE of demand between good X and good Z = price coefficient of Z * PZ/QX
CPE = -0.1*300/(1200 - 3*140 - 0.1*300)
= -0.04
Since elasticity is negative, goods X and Z are complements.
The demand curve for a product is given by QXd = 1,200 - 3PX - 0.1PZ...
Chapter 3 Problems Saved Help Save & Exit Submit Check my work 2 The demand curve for a product is given by ox 1200-3Px- 01Pz where P2 $300. a. What is the own price elasticity of demand when Px $140? Is demand elastic or inelastic at this price? What would happen to the firm's revenue if it decided to charge a price below $140? 10 points Instruction: Enter your response rounded to two decimal places. eBook Own price elasticity Print...
The demand curve for a product is given by QX = 1200 – 3PX – 0.1PZ where PZ = $300. a. Find the (own) price elasticity of demand when PX = $140. b. Is the demand is elastic or inelastic in (a)? Explain your answer. c. What would happen to the price elasticity of demand when a firm charges a price of good X is $240? (Hint: explain whether the demand is elastic or inelastic when PX is $240 and...
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